HMRC disputes PAC tax findings

Friday 20 December 2013

HM Revenue and Customs (HMRC) has hit back at the Public Accounts Committee (PAC) following the release of its Annual Report & Accounts 2012-13, which criticised the government body's prosecution of tax avoidance.

The PAC claimed HMRC has been holding back from prosecuting companies and individuals that don't give the proper information in a bid to avoid tax.

Indeed, the tax gap increased by £1 billion to £35 billion in 2011/12. This is despite the government's publicised crackdown on tax avoidance and a focus on IR35 compliance.

PAC committee chair Margaret Hodge claims HMRC "pursues tax owed by the smaller businesses but seems to lose its nerve when it comes to mounting prosecutions against multinational corporations".

The tax body particularly came under fire for its collection - or lack there of - of unpaid tax from UK holders of Swiss bank accounts. According to the PAC report, just £440 million has been collected from this group. This comes after HMRC projected that it would recover £3.12 billion.

In answer to the report, HMRC issued a statement challenging what it claims was the PAC's "selective and misleading use of figures".

The department claims that it works to collects levies from all taxpayers under the laws passed by parliament.

It has gathered more than £50 billion of additional tax from its compliance work since 2010 - £23 billion of which was from large businesses.

There have also been 2,345 prosecutions for tax evasion over the last three years, not to mention around a 50 per cent reduction in disclosed tax avoidance schemes.

HMRC claims more than £2.4 billion has been protected from marketed tax avoidance schemes in this year alone.

What's more, the tax gap has fallen from 8.3 per cent in 2005-2006 to seven per cent in 2011-2012.

"If the tax gap had remained at the level it was at seven years ago, we would be collecting £7 billion less each year," HMRC explained.

"HMRC’s methodology for measuring the tax gap is robust and has been endorsed by the International Monetary Fund (IMF). Contrary to what the PAC report says, the published tax gap does include a measure of the tax lost from avoidance, as well as evasion, but it can only measure non-compliance with existing tax law – it cannot estimate how much tax might be due if tax laws were different."

The department went on to add that it can only bring in a certain amount of tax under the law and the PAC knows that it is unable to prosecute multinational companies for activities that are lawful within the international tax framework.

It stresses that it does not hesitate to take large businesses to court and will consider prosecution in any instance where there is grounds to believe HMRC has been misled, misinformed or withheld information.

This, it claims, is evidence by the eight court wins against large business that took place in the first half of the year alone - cases that protected £1 billion of tax.

By Victoria McDonnell

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