NAO exposes HMRC tax avoidance failure

The National Audit Office (NAO) has highlighted HMRC’s inability to properly monitor tax avoidance, which is costing the country billions of pounds.

The NAO report, ‘Tax avoidance: tackling marketed avoidance schemes’, reveals HMRC is stretched and facing an uphill battle against avoidance. According to the report HMRC is dealing with a backlog of 41,000 cases with up to £10.2bn at stake.

HMRC claims to have successfully challenged 40 schemes in the last two years; however the spending watchdog says the Revenue “must push harder”.

Continued...

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Comments

Why do we stand by and allow    2 thanks

ThornyIssues | | Permalink

Why do we stand by and allow HMRC to defend their GAAR stance of "we need vague and woolly tax laws so that we can interpret the rules as we see fit" when the consequences are <insert collective noun here> of loopholes that in turn fuel tax avoidance, whether it be aggressive or otherwise. Why can't we insist on simple unambiguous tax laws where the laws of unitended consequences are discovered prior to enactment so that HMRC don't burn taxpayers money trying to litigate for closure of said loopholes. It is simply mad!

HMRC conduct    1 thanks

allanr | | Permalink

Some political clap-trap blurring the distinction between avoidance and evasion has also been unhelpful.  Maybe the tax code needs root and branch restructuring.  Meanwhile, Google and Costa are not critical to our economy, so can we pease tax them, I cannot afford to cover these Multinationals like this!

Not a surprise

ncm65 | | Permalink

This is not at all surprising. I am dealing with a case where a tax "scheme" was used, the DOTAS number quoted on the return together with white space disclosure. No enquiry was raised within the allowed time limit and HMRC are now seeking to argue discovery on the basis that reporting to DOTAS number and white space disclosure did not give HMRC sufficient information with which to raise an enquiry!

To follow on from the previous comment, there is no point putting in place legislation that HMRC are not competent to police.

Fit for purpose    2 thanks

ader | | Permalink

The probelm isn't so much HMRC as the legal system in the UK. 

 

UK tax Laws are interpreted by the courts according to the time honoured tradtiion of looking at what the words say - If they say rule A applies if B, C or D is in point then if you do E the chances are courts will say rule A doesn't apply even if E is clearly exploiting a loophole / something not envisaged when the law was written.

 

Surely it's time for a more purposive approach to interpretation so the above scenario would mean using E would still mean you're caught under rule A becasue teh purpose of Rule A is to tax certain actvities.

 

just a thought :)

 

HMRC failures    18 thanks

DMS | | Permalink

I hate to point out the obvious, but contrary to your sensationalist headline, its not costing the country billions at all. If UK taxpayers are keeping more of their money through legal avoidance schemes, then what do you think is happening to that cash? Paying down debt, spending it, saving it. Its not lost to the country. Its lost to the government.

That only matters because they are either too stupid to see the need to cut their expenditure to meet their income, or they are too frightened of the political fallout. Either way, the current approach of using mob tactics to part people from their money to pay for their profligacy, coupled with the insidious assumption that they are somehow entitled to it, is a large step closer to a police state. It is parallel to the current attempt to force organ donation - what you have is the state's, to do with as they feel fit.

The apalling attempts to stigmatise anyone paying their own way in life rather than relying on government, and then to play emotional games with a gullible public who genuinely have an excuse for not understanding the technicalities by placing celebrity names with national newspapers for public vilifcation, are the tactics of a government that has frankly lost all right to govern.

Tax avoidance is fast becoming a desirable social tool to send a shot across the bows of government, sending a message to cut their cloth rather than beat up on the wealth creators who employ people and make things people want. My children will have a mountain of debt to pay off because of the last 15 years of government, and THAT is the scandal. There will never be any growth while 50% of the population (75% in Wales, 80% in Scotland) earn from the state and generate nothing that can be bought or exported.

Nick Graves's picture

That's the point    1 thanks

Nick Graves | | Permalink

ncm65 wrote:

To follow on from the previous comment, there is no point putting in place legislation that HMRC are not competent to police.

That is unfortunately true.

Rightly or wrongly, the super-rich will always be able to afford such luxuries and maybe it's time the control-freak overlords accepted it and moved on. The law of unintended consequences inevitably means legislation beats up those who aren't even trying to use such luxury schemes instead.

HMRC would be better spending the resouces fixing some of the systemic problems that have irked the masses and their beancounters for decades without resolution. Whether that be blatant tax evasion, or moronic Notices of Coding, or whatever. 

 

Starbucks    3 thanks

simonwwhitt | | Permalink

Bit unfair to tarnish the good name of Costa Coffee (owned by Whitbread and paying very large sums of tax in the UK) when you mean Starbucks (US owned and paying no UK tax).  Costa is a victim of this unfair competition from Starbucks just as much as HMT!

Total tax cost accounting

awiddowson | | Permalink

It's sad to see how the debate on tax avoidance is haunted by comments that seem, to the informed professional, to be based on egregious misconceptions.  For example, how often do we see questions along the lines of, "How can it be fair for XYZ plc to pay corporation tax of only £x, when its sales are £x billion?"  If one points out that corporation tax is paid on profits, not sales, and mentions the possibility of double tax relief, then a lot of participants in the debate find that just boring.

Not that I would condone this approach in any way whatsoever, but if large companies wished to defuse the debate to some degree, perhaps they should contemplate moving to a system of accounting that would aggregate all taxes that they pay into a single heading.  We could call it "total tax cost accounting", but I'm sure others could come up with a catchier name.  The principles would be:

Sales - report sales gross of all sales taxes, such as VAT, customs duties and so on;

Staff costs - report the net amount that the employees actually take home;

Tax - add up all the VAT, customs duties, business rates, PAYE, NIC and corporation tax that the company or group pays over to HMRC and any other tax authorities, and report the total as a single number.

Accountants will want to say that this mixes up apples and pears, and fails to identify whose tax is which.  But that isn't really the point, is it?  If you were on the side of the debate that wanted to say, "Look how much we pay in taxes!" then surely this would be an accounting standard you would support.  Companies' published accounts have always been there mostly to make a case of some sort or other, not just to report the facts.

johnjenkins's picture

Got it in one DMS    1 thanks

johnjenkins | | Permalink

Let's go one stage further. Name me one politician in the world today with guts. The world is in a mess because we don't have leaders anymore. I said this before, if Hitler were alive today he would clean up with miniscule bloodshed. The EU can't even agree a budget, that really says it all.

Total tax cost accouting    1 thanks

chrisgu | | Permalink

Not a bad idea, apart from the fact that the company is not paying VAT or PAYE, merely collecting them on behalf of HMRC.  It is the consumer and the employee that is paying them.

johnjenkins's picture

Wouldn't work

johnjenkins | | Permalink

cos companies cannot be lumped under one work/sales  method. eg(no VAT on exports/imports etc etc),only employing part timers etc.etc.

DMS above

Limnerlad | | Permalink

 

Mr.DMS has hit the button dead square on..  I 100% agree with the thread.   It is a great pity that politicians are not FORCED to look at their own tax laws instead of waving them through 'on the nod' as it were.  Every MP should have at least 25 paragraphs to read and understand of EVERY law written by the hordes of civil servants who actually produce the words.  A short 'exam' would soon weed out the failures.

RM.. (Limnerladdie)

Tax avoidance    1 thanks

Donald6000 | | Permalink

They have been told about this until we are all blue in the face. I am one of the ones who has constantly stated that a lot of companies are run from a shoe box in Grand Cayman, in the office of some wise guy lawyer. I dont think this is so far from the truth. HMRC seem blissfully unaware of this and keep trying to tell us that they are on the case. How can they be on the case when their own professional expertise is so woefully lacking. They need people in the back office function who can aggressively go after the weasel shysters who are doing the evasion (aggressive avoidance); they need qualified accountants, or people with accounting and law degrees who can actually do the business. What we dont need is to employ more clerical staff who are busy clawing back a couple of hundred quid a time in child benefit just because some poor soul is earning just above the limit.

 

The HMRC know what the aggressive avoidance schemes are now - they should be up to it, so why the foot dragging, heaven only knows? My only thoughts on it are that here we have a government which is up to its neck in obfuscation itself - they know that they have been party to a few tricks themselves (and their rich friends). We really need to make a clean breast of all these matters now and clean all of this up now, or give all of it up as a bad job. Somehow this nation needs a morality check and fast.

Don't want to hijack but....    2 thanks

mackthefork | | Permalink

"It is parallel to the current attempt to force organ donation - what you have is the state's, to do with as they feel fit. """""""

....if I am unlucky enough to get killed, I am only too happy to give up my organs so either you or your loved ones, or some other random person I do not know can live on, I got a card to say so, I don't know why you chose to say such a thing when everyday hundreds of peoples chance at life get buried or burned for no good reason, you ruined and otherwise perfectly sound argument. 

Whilst you may feel strongly about keeping your organs, most people simply cannot be bothered to fill in the form, otherwise they would be perfectly happy to donate, that is the true reason for poor take up of organ donation, not religion, superstition. or even personal choice, people die because we have a right to be lazy and not be judged.

Anyway that's me crashed and burned, at the altar of one of our last great taboos, next week euthanasia.

Regards

MtF

Curing effect rather than cause

ThornyIssues | | Permalink

Donald6000 wrote:

The HMRC know what the aggressive avoidance schemes are now - they should be up to it, so why the foot dragging, heaven only knows? My only thoughts on it are that here we have a government which is up to its neck in obfuscation itself - they know that they have been party to a few tricks themselves (and their rich friends). We really need to make a clean breast of all these matters now and clean all of this up now, or give all of it up as a bad job. Somehow this nation needs a morality check and fast.

I say again. Prevent HMRC from drafting vague and woolly tax laws which rely on case law challenge (more than once) using taxpayers money in the first place. No avoidance, cut the scope for evasion and make compliance checking simplistic.

Nick Graves's picture

Too late

Nick Graves | | Permalink

ThornyIssues wrote:

Donald6000 wrote:

The HMRC know what the aggressive avoidance schemes are now - they should be up to it, so why the foot dragging, heaven only knows? My only thoughts on it are that here we have a government which is up to its neck in obfuscation itself - they know that they have been party to a few tricks themselves (and their rich friends). We really need to make a clean breast of all these matters now and clean all of this up now, or give all of it up as a bad job. Somehow this nation needs a morality check and fast.

I say again. Prevent HMRC from drafting vague and woolly tax laws which rely on case law challenge (more than once) using taxpayers money in the first place. No avoidance, cut the scope for evasion and make compliance checking simplistic.

It's too late for reform and physically impossible, I fear.

Parliament & HMRC have become self-perpetuating quasi-organisms that are more interested in self-propagation than in genuine reform.

Drafting clear & effective legislation would eliminate zombie jobs and would thus be unacceptable.

The result is inevitably a descent into soviet-style centralism & bureaucracy, paid for by ever-crazier money printing and increasing theft by fines for trivial errors; the tipping point at which either the bureaucracy or debt could be unwound has long passed.

As with the Eastern Bloc, Argentina, the Weimar Republic, it will all inevitably implode and we will have the opportunity to wipe the slate clean & start again from scratch.

Of course, the super-rich will be able to pay to protect themselves from the anarchic fall-out.

 

 

 

  

 

 

 

johnjenkins's picture

I, like Nick,    1 thanks

johnjenkins | | Permalink

can't see a way through.

Well, yes, there is a way and that is for world debt to be totally wiped out and we start again. This time all countries who wish to participate contribute an equal amount on a yearly basis, then when countries run into difficulty they can borrow interest free. It won't happen si in the meanwhile we will have to put up with HMRC's pathetic attempts to outlaw "avoidance".

Message to HMRC "you have to make "avoidance" illegal before you can stop it".

If the state owns your body...

DMS | | Permalink

Hi Mack

I can see this as a parallel thread developing, so I apologise to anyone who is bored by this. The state is a construct by and for the people, not the other way round. To that end, all property is personal unless agreed otherwise.

Saving lives is not sufficient argument to overcome this. If saving lives were that much of a priority to citizens, they would carry the necessary cards. It is patronising in the extreme to suggest that they are too lazy or stupid to carry one, and therefore must be made to do so. Perhaps the next step is to carry out compulsory drug testing on humans - after all, that would save lives too? How many things should we force through on the basis of saving lives? Once you start forcing public opinion on private individuals (as is happening all too often these days in the name of political correctness) you have a fascist dictatorship.

We should be free to organise our own lives, and that includes doing things the e rest may be unhappy about. And for the record, I carry an organ donor card too. I just dont want to see it as compulsory, because they have no right to my body. Or any more tax than the laws allow!

Best wishes

I didn't want to go on and on, so I deleted part of my post....

mackthefork | | Permalink

DMS wrote:

Hi Mack

I can see this as a parallel thread developing, so I apologise to anyone who is bored by this. The state is a construct by and for the people, not the other way round. To that end, all property is personal unless agreed otherwise.

Saving lives is not sufficient argument to overcome this. If saving lives were that much of a priority to citizens, they would carry the necessary cards. It is patronising in the extreme to suggest that they are too lazy or stupid to carry one, and therefore must be made to do so. Perhaps the next step is to carry out compulsory drug testing on humans - after all, that would save lives too? How many things should we force through on the basis of saving lives? Once you start forcing public opinion on private individuals (as is happening all too often these days in the name of political correctness) you have a fascist dictatorship.

We should be free to organise our own lives, and that includes doing things the e rest may be unhappy about. And for the record, I carry an organ donor card too. I just dont want to see it as compulsory, because they have no right to my body. Or any more tax than the laws allow!

Best wishes

Hi DMS

I do not think the state should own your body, I do not think donor cards should be compulsory, so there we have common ground.  I disagree with you about that being patronising, these same people are suddenly exorcised when junior needs a new kidney or heart, saying it is not a priority to citizens is partly true, but it is also partly a rephrasing or my wording (too stupid or lazy), and kind of splitting hairs.  IMO donated organs are not given to the state, but to the eventual recipient, perhaps I can accept that there is a problem here as the state does decide who the recipient will be to some extent, on the basis of viability and chances of success, and not on a financial basis.

If I was to suggest a system it would be on the opt out basis, and yes I can see problems with this, from both the point of the individual, their relatives/next of kin and from the point of view of how we see the relationship between ourselves and the state in the UK, however none of these is as large as the current problem of low adoption of donor cards.  Saving lives does seem to be the basis of many laws and controls, in general, so I do not see why this should be different.

Finally I must apologise to you, as I did not mean to imply that I thought you did not have a card yourself, but I seem to have given that impression, so my apologies.

Best wishes

MtF

Total tax cost accounting

awiddowson | | Permalink

Reply to chrisgu: I know - but please read my last paragraph.