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”.
The report found disclosures don't necessarily equate to hitting back at aggressive tax schemes. The disclosure of tax avoidance schemes (DOTAS) facility has helped the Revenue change tax law and prevent some avoidance activity, however the report found that challenging a scheme is a resource-intensive process which can take years and often requires litigation.
The report reveals that in each of the last four years more than 100 avoidance schemes have been disclosed under DOTAS, but it found there was no evidence that their usage has reduced.
Amyas Morse, head of the NAO, said HMRC must push harder to find an effective way to tackle the promoters and users of the most aggressive schemes.
“Though its disclosure regime has helped to change the market, it has had little impact on the persistent use of highly contrived schemes which deprives the public purse of billions of pounds,” he said. “It is inherently difficult to stop tax avoidance as it is not illegal. But HMRC needs to demonstrate how it is going to reduce the 41,000 avoidance cases it currently has open.”
HMRC defended its record over the last couple of years, but admitted that their approach must change.
An HMRC spokesman told AccountingWEB: “HMRC has successfully challenged over 40 tax avoidance schemes through the courts in the last two years alone, successfully disrupting the avoidance industry through a combination of legal challenge and improved intelligence on new schemes, and protecting around £4bn.
“But as the avoidance landscape changes, so must our approach. The government is building on DOTAS to give HMRC stronger powers to obtain information. These, together with the introduction of an anti-abuse rule in 2013 will further strengthen our anti avoidance work.”
The report also raised concerns that HMRC does not monitor its costs and has not yet identified how it will evaluate its effectiveness.
Between 2004 and 2011 around 2,300 avoidance schemes were disclosed to HMRC.
For the full report visit the NAO website.
Last week the government confirmed it will appoint an interim advisory group to help it write a new General Anti-Abuse Rule (GAAR) aimed at tackling egregious tax avoidance schemes. An interim group of panel members led by Graham Aaronson QC will oversee the development of the new guidance, after it is published for public consultation in December.