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Disclosure regime has had ‘little impact’ on aggressive tax avoidance, says NAO

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HMRC has 41,000 open tax avoidance cases relating to marketed schemes used by individuals and small businesses, and its disclosure regime has had little impact on the persistent use of highly contrived schemes, according to the National Audit Office.

The NAO ‘scrutinises public spending for Parliament’ and is independent of government. It emphasises that tax avoidance ‘is not illegal and is therefore inherently difficult to stop’.

‘In each of the last four years, over 100 new avoidance schemes have been disclosed under DOTAS. While HMRC believes most of these would be defeated if tested in the courts, there is no evidence that their usage is reducing,' it said.

It was not yet clear what impact the proposed general anti-abuse rule would have.

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 tax avoidance 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. It is inherently difficult to stop tax avoidance as it is not illegal. But HMRC needs to demonstrate how it is going.’

The NAO’s analysis of DOTAS disclosures since 2004 supported the view that ‘an increasing proportion’ of marketed schemes are now sold by small specialist firms, often known as ‘tax boutiques’.

The Financial Times quoted Margaret Hodge, chairman of the Commons public accounts committee, as saying: ‘People who pay their taxes promptly and in full will be dismayed to discover that the enormous level of tax avoidance taking place is overwhelming HMRC’s efforts to combat it.’

A HMRC spokesperson said: ‘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.’