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MPs slam HMRC over tax gap

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9th Mar 2012
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HMRC needs to be more accountable and open about the way it settles large tax disputes according to a committee of MPs which also said that the Revenue’s calculation of the UK tax gap is “flawed”.

The Treasury sub-committee report comes amid growing criticism over the way HMRC settles large tax disputes with companies after it admitted making mistake in a tax dispute with Goldman Sachs. Critics have accused HMRC of making “sweetheart” deals with big business and for being opaque in the way it settles tax disputes.

George Mudie, MP, chairman of the sub-committee said: “It is encouraging that HMRC has recognised that its processes for settling tax disputes were flawed and is implementing changes. However, serious questions remain about accountability and transparency with respect to HMRC’s governance, both at ministerial level and at board level.”

Although HMRC had done some “good work” in ensuring tax compliance there is still a long way to go if the tax gap – the difference between the amount of tax HMRC thinks it is owed and what it actually receives - is to be reduced significantly, Mudie said.

A report by the National Audit Office published last week said that HMRC had narrowly missed a target to increase tax yield by clamping down on tax evasion.

The Treasury sub-committee report said that the HMRC’s calculation of the tax gap is “flawed and risks focusing the minds of its employees on the wrong task: maximising revenue at all cost rather than ensuring that all taxpayers pay the right amount of tax.”

The committee added that it was seeking views on whether there is any value in HMRC continuing to publish the tax gap as an aggregate figure.

Other recommendations and conclusions in the report include:

  • HMRC should consider establishing a general tax disclosure facility to run alongside its targeted campaigns
  • For offshore campaigns to be successful, those who do not take up the opportunity to disclose unpaid tax to HMRC should be prosecuted
  • The new “assurance commissioner” who will be appointed to oversee all large tax settlements should appear before the subcommittee
  • HMRC’s proposed code of governance for tax dispute resolution should be explicit that the same rules apply to settlement of tax disputes with its large corporate customers as apply to settlements with all other taxpayers

Derek Allen, director of tax at Institute of Chartered Accountants of Scotland, said it welcomed the MP’s report. 

“The committee’s recommendations should help HMRC align its resource more effectively tackling tax evasion and criminal behaviour with suitable penalties, prosecution and other deterrents,” he said.

When compiling its report on the UK tax gap the Treasury subcommittee questioned experts including John Whiting, tax policy director at the Chartered Institute of Taxation, Chas Roy-Chowdhury, head of taxation, at the Association of Chartered Certified Accountants, and Richard Murphy, director of Tax Research UK.

Murphy told the MPs that his estimate of the UK tax gap was £120bn, which includes around £25bn of late-paid tax.

“The Revenue’s figures suggest an evasion rate of around 7%,” Murphy told the committee. “My suggestion is it is around 13%. That would tie in with the World Bank figures, for example, published in the last year. I think that is a reasonable estimate. It means that roughly £1 in £8 of the UK’s economy is in the black economy.”

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By The Black Knight
12th Mar 2012 12:07

If only they were really concerned

They would invest, as this is about the only Government service that could make a return on investment.

So what do they do.

Cut back.... thus encouraging non compliant behaviour.

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