In its sixth report of the 2015/16 session, entitled HM Revenue & Customs performance in 2014–15, the Public Accounts Committee (PAC) criticised HMRC’s performance last year, saying the number of prosecutions for offshore tax evasion was ‘woefully inadequate’; that HMRC’s failure to gather intelligence on losses through aggressive tax avoidance was an obstacle to improving UK tax laws; and that HMRC’s customer service was now considered so bad it could be having ‘an adverse impact on the collection of tax revenues’.
PAC chair Meg Hillier MP said: ‘HMRC must do more to ensure all due tax is paid. The public purse is missing out and taxpayers expect and deserve better. We are deeply disappointed at the low number of prosecutions (i.e. 11) by HMRC for tax evasion. We believe it is important for HMRC to send a clear message to those who seek to evade tax that the penalties will be severe and public. It’s also important that the majority who play by the rules see that those who don't will face the consequences.
‘Tax avoidance also remains a serious concern. Too many avoidance schemes run rings around the taxman, operating legally but gaining advantages never intended by Parliament. If tax law is to be improved, then HMRC must as a priority provide Parliament with comprehensive details of avoidance.
‘HMRC must also rapidly improve its customer service, previously described by the PAC as “abysmal” and now even worse – to the extent it could be considered a genuine threat to tax collection. It beggars belief that, having made disappointing progress on tax evasion and avoidance, the taxman also seems incapable of running a satisfactory service for people trying to pay their fair share.’
In its report, the PAC noted that the Office of Tax Simplification (OTS) had identified 1,140 tax reliefs, whereas HMRC listed ‘about 400’; the report stated HMRC told the PAC that it ‘focuses on the most important tax reliefs, but has not identified which these are’. The PAC reiterated its previous recommendation that HMRC ‘publish and maintain an up-to-date list of tax reliefs using a definition agreed with the OTS that sets out each relief’s purpose and its cost to the exchequer’, before adding: ‘However, HMRC is not prepared to provide a comprehensive list of tax reliefs or to provide a definition of tax reliefs including those designed to encourage behavioural change (tax expenditures). HMRC believes some OTS-listed tax reliefs, such as zero-rating for VAT, are so well-established that they do not merit an evaluation of their costs and objectives. We note that other countries … publish more comprehensive information about tax reliefs and categorise them according to their objectives to enable more effective parliamentary scrutiny and accountability.’
The PAC acknowledged HMRC’s achievements in increasing the amount of tax collected while also reducing its running costs over the last five years, but said it had ‘made little or no progress on a number of important issues’ the PAC had raised before. The previous Committee considered that HMRC’s target of answering 80% of telephone calls within five minutes was ‘woefully inadequate and unambitious’; however, in 2014/15, HMRC responded to just 72.5% of all calls and the PAC found that over the first half of 2015 this had fallen to 50%. Additionally, only 39% of calls were answered within five minutes.
According to the latest HMRC figures, the tax gap stood at £34bn in 2012/13, and showed that tax evasion and tax avoidance constituted £4.1bn (12%) and £3.1bn (9%) respectively of this figure. The PAC noted that the tax gap excluded aggressive tax avoidance schemes which, while found legal in the courts, are contrary to the spirit of the law; and said that it ‘[did] not accept HMRC’s argument that tracking such avoidance activity is impossible’.
The CIOT urged HMRC to toughen its resolve to move to a more systemic and consistent way to collect taxes in the long-term. But CIOT president Chris Jones said that while poor service to the public should not be accepted, it did not necessarily follow that this harms HMRC’s ability to collect taxes. ‘Compliance is high and we understand high against appropriate international comparisons – surely the overall level of tax collected is the test of performance’, he said.
However, Paul Aplin, tax partner at A C Mole & Sons and chairman of the ICAEW Tax Faculty Technical Committee, said: ‘I am relieved that Meg Hillier sees the clear correlation between people’s willingness to pay the right tax and HMRC’s service levels. Now we just need politicians to see what is blindingly obvious to everyone outside Whitehall, which is that HMRC simply cannot provide the levels of service taxpayers rightly expect until adequate funding and resource is devoted to service delivery and training. It is hardly surprising that HMRC is reluctant to commit to levels of service that it plainly has insufficient resource to deliver.’
The Public and Commercial Services (PCS) union agreed with Aplin, saying that HMRC needed ‘a major investment and reversal of years of job cuts to properly tackle tax evasion and help taxpayers’. Since 2010, 11,000 full-time equivalent staff posts have been cut from the department. In her foreword to HMRC’s 2014/15 annual report, chief executive Lin Homer admitted that trying to plug gaps on its phone lines has ‘reduced service levels for customers contacting [HMRC] by post too’.
PCS general secretary Mark Serwotka said: ‘It has been abundantly clear for years that the department has cut too many staff and that services are suffering. The department needs major investment backed by a real political commitment to tackle tax evasion and avoidance as an alternative to more damaging spending cuts.’
In summary, the PAC came to the following conclusions and recommendations:
For the full PAC report, see www.bit.ly/1Nbg732.
In its sixth report of the 2015/16 session, entitled HM Revenue & Customs performance in 2014–15, the Public Accounts Committee (PAC) criticised HMRC’s performance last year, saying the number of prosecutions for offshore tax evasion was ‘woefully inadequate’; that HMRC’s failure to gather intelligence on losses through aggressive tax avoidance was an obstacle to improving UK tax laws; and that HMRC’s customer service was now considered so bad it could be having ‘an adverse impact on the collection of tax revenues’.
PAC chair Meg Hillier MP said: ‘HMRC must do more to ensure all due tax is paid. The public purse is missing out and taxpayers expect and deserve better. We are deeply disappointed at the low number of prosecutions (i.e. 11) by HMRC for tax evasion. We believe it is important for HMRC to send a clear message to those who seek to evade tax that the penalties will be severe and public. It’s also important that the majority who play by the rules see that those who don't will face the consequences.
‘Tax avoidance also remains a serious concern. Too many avoidance schemes run rings around the taxman, operating legally but gaining advantages never intended by Parliament. If tax law is to be improved, then HMRC must as a priority provide Parliament with comprehensive details of avoidance.
‘HMRC must also rapidly improve its customer service, previously described by the PAC as “abysmal” and now even worse – to the extent it could be considered a genuine threat to tax collection. It beggars belief that, having made disappointing progress on tax evasion and avoidance, the taxman also seems incapable of running a satisfactory service for people trying to pay their fair share.’
In its report, the PAC noted that the Office of Tax Simplification (OTS) had identified 1,140 tax reliefs, whereas HMRC listed ‘about 400’; the report stated HMRC told the PAC that it ‘focuses on the most important tax reliefs, but has not identified which these are’. The PAC reiterated its previous recommendation that HMRC ‘publish and maintain an up-to-date list of tax reliefs using a definition agreed with the OTS that sets out each relief’s purpose and its cost to the exchequer’, before adding: ‘However, HMRC is not prepared to provide a comprehensive list of tax reliefs or to provide a definition of tax reliefs including those designed to encourage behavioural change (tax expenditures). HMRC believes some OTS-listed tax reliefs, such as zero-rating for VAT, are so well-established that they do not merit an evaluation of their costs and objectives. We note that other countries … publish more comprehensive information about tax reliefs and categorise them according to their objectives to enable more effective parliamentary scrutiny and accountability.’
The PAC acknowledged HMRC’s achievements in increasing the amount of tax collected while also reducing its running costs over the last five years, but said it had ‘made little or no progress on a number of important issues’ the PAC had raised before. The previous Committee considered that HMRC’s target of answering 80% of telephone calls within five minutes was ‘woefully inadequate and unambitious’; however, in 2014/15, HMRC responded to just 72.5% of all calls and the PAC found that over the first half of 2015 this had fallen to 50%. Additionally, only 39% of calls were answered within five minutes.
According to the latest HMRC figures, the tax gap stood at £34bn in 2012/13, and showed that tax evasion and tax avoidance constituted £4.1bn (12%) and £3.1bn (9%) respectively of this figure. The PAC noted that the tax gap excluded aggressive tax avoidance schemes which, while found legal in the courts, are contrary to the spirit of the law; and said that it ‘[did] not accept HMRC’s argument that tracking such avoidance activity is impossible’.
The CIOT urged HMRC to toughen its resolve to move to a more systemic and consistent way to collect taxes in the long-term. But CIOT president Chris Jones said that while poor service to the public should not be accepted, it did not necessarily follow that this harms HMRC’s ability to collect taxes. ‘Compliance is high and we understand high against appropriate international comparisons – surely the overall level of tax collected is the test of performance’, he said.
However, Paul Aplin, tax partner at A C Mole & Sons and chairman of the ICAEW Tax Faculty Technical Committee, said: ‘I am relieved that Meg Hillier sees the clear correlation between people’s willingness to pay the right tax and HMRC’s service levels. Now we just need politicians to see what is blindingly obvious to everyone outside Whitehall, which is that HMRC simply cannot provide the levels of service taxpayers rightly expect until adequate funding and resource is devoted to service delivery and training. It is hardly surprising that HMRC is reluctant to commit to levels of service that it plainly has insufficient resource to deliver.’
The Public and Commercial Services (PCS) union agreed with Aplin, saying that HMRC needed ‘a major investment and reversal of years of job cuts to properly tackle tax evasion and help taxpayers’. Since 2010, 11,000 full-time equivalent staff posts have been cut from the department. In her foreword to HMRC’s 2014/15 annual report, chief executive Lin Homer admitted that trying to plug gaps on its phone lines has ‘reduced service levels for customers contacting [HMRC] by post too’.
PCS general secretary Mark Serwotka said: ‘It has been abundantly clear for years that the department has cut too many staff and that services are suffering. The department needs major investment backed by a real political commitment to tackle tax evasion and avoidance as an alternative to more damaging spending cuts.’
In summary, the PAC came to the following conclusions and recommendations:
For the full PAC report, see www.bit.ly/1Nbg732.
