Treasury Committee: Govt anti-avoidance measures are uncertain

Monday 17 March 2014

There are considerable uncertainties surrounding the fiscal effects of the government's tax avoidance measures, according to the Treasury Committee.

In a new report ahead of the Budget, the department warned that more needs to be done to investigate how officials project revenues.

This will help the government better target measures that crackdown on avoidance, without accruing undue costs or losses.

The chair of the Treasury Committee, Andrew Tyrie, said: "Forecasts of additional revenue from many anti-avoidance measures are inherently extremely uncertain."

According to the Office for Budget Responsibility (OBR), there is indeed a limit to how far the government can determine how much cash they will gain through targeting contractors deemed to be avoiding tax.

This is because what can be learned from previous policies is restricted, thereby making it hard to determine whether costings are suitable.

An examples of this is the UK-Swiss tax agreement. In 2012, the Treasury Committee warned that the proceeds of the action might not be as high as expected and now the government has had to revise down its expected yield by almost two thirds.

Yet the government is continuing to introduce further measures to close the net on tax avoiders. It is actively trying to shut down avenues of avoidance.

Officials claim that the changes will bring in more than £6.8 billion of new revenue. This is more than any other fiscal event of this parliament.

However, the Treasury Committee now claims the OBR must report on whether yields were attained as they were originally costed. If this isn't possible, the government should be limited in how far it can account for such projected gains.

"The Committee warned in its report on the Autumn Statement 2012 that the forecast revenues from the UK-Swiss agreement - at £5.3 billion - were subject to uncertainty and that the proceeds may not meet expectations," Ms Tyrie said. "These concerns appear to have been justified."

He added that more transparency is needed, as it can be difficult to measure how much has been raised after the event.

"The OBR should  look again at how the government accounts for projected revenues, based on previous experience," Mr Tyrie stated.

Of course, any scheme to close down routes of possible tax avoidance must be matched with measures to educate taxpayers on how to be compliant.

Often complicated tax rules leave many vulnerable to falling foul of compliance.

In a bid to simplify matters, Conservative MP Ben Gummer is trying to change the name of National Insurance to Earnings Tax.

He believes that the current monika is misleading, as the levy is effectively another form of income tax.

It is believed chancellor George Osborne is in favour of the bill, but has yet to make a public comment.

Mr Gummer has declared that he is happy there is interest in his idea, claiming the government is receptive to attempts to improve transparency.

"If we give them a better handle on what they are paying and where it goes, you only enhance the conversation that you have with politicians," he said.

The Office of Tax Simplification is also trying to make compliance easier for taxpayers. Proposals contained in the 'Review of Employee Benefits and Expenses' aim to enable businesses to process benefits for staff - including limited company directors - through payroll.

By Victoria McDonnell

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