HMRC should introduce a new code of conduct for tax advisers and argue for more resources to help it collect more tax, the Public Accounts Committee (PAC) said.
In its report on tax relief and how to improve tax collection, the PAC also recommended that HMRC should monitor the cost effectiveness of tax relief more closely.
“HMRC needs to show that it comes down hard on tax cheats and change the perception that it is far too tolerant of these companies and individuals,” said PAC chair Margaret Hodge.
“In contrast to its treatment of small businesses and the majority of the public who pay their taxes through PAYE. We are not persuaded that HMRC and the Crown Prosecution Service are doing enough to prosecute serious tax evasion cases.”
She also said that the committee is still concerned that the Revenue relationship with large accountancy firms is “too cosy”, and it needs to get much tougher in challenging the advice they give to their clients.
The complexity of the UK tax code makes tax avoidance and evasion easier, the committee said.
“This government came into office committed to reducing tax reliefs, but in practice the number of reliefs has increased by almost 100 so that, according to the Office for Tax Simplification, we now have 1,140 tax reliefs.”
HMRC does not effectively monitor changes in the cost of tax reliefs, so is slow in identifying instances where a relief is being exploited for a purpose Parliament did not intend, the committee added.
The report also criticised the tax department for cutting tens of thousands of jobs since 2005. Giving it more resources could also help it counter tax avoidance, the committee said.
“The complexity of tax law and the constraints on HMRC’s resources mean that it is fighting an uphill battle against those who are determined to cheat the tax system. HMRC could collect more of the tax that is due if it had more resources devoted to this work and it should be assertive about making this case to HM Treasury and Parliament.”
Other recommendations included were that:
- HMRC should challenge the tax advice large accounting firms give their client. “We are concerned that HMRC’s relationship with large accountancy firms is too cosy. In our February 2015 report on the role of large accountancy firms we drew attention to the need for HMRC to take a more active role in challenging the advice given by large firms to their multinational clients. In its response, published on 19 March, HMRC disagreed with our recommendation for it to challenge tax advice, citing only what it does to challenge non-compliance by the multinationals themselves.”
- HMRC should gather evidence to establish the effectiveness of prosecutions in deterring tax evasion by wealthy individuals. HMRC should work with the Crown Prosecution Service to significantly increase the number of prosecutions.