Revenue and Customs bosses, reeling from the broadside they took for claiming the UK’s tax-dodging public enemy number one was a hairdresser from Liverpool, can take no solace from the attitude of Parliament’s own public accounts committee.
Three days before HMRC published its silly little list, the committee called on it to “publically name and shame” all organisations and individuals who sell or use tax avoidance schemes, in order to discourage such activity.
The fact that the organisation has not taken the opportunity to do so serious undermines its position.
Let’s have a look at what the UK Parliament’s website – www.parliament.uk – has to say about the government’s stance, because the criticism is so heavy it’s almost funny:
Tax avoidance—using tax law to gain a tax advantage not intended by Parliament—reduces the money available to fund public services and is completely unfair to the majority who pay the tax due. HM Revenue & Customs (HMRC) estimates that in 2010-11 the tax gap due to avoidance was £5 billion. HMRC further estimates that the present total tax at risk from avoidance over time is £10.2 billion.
In Australia, promoters have to get clearance for schemes before they introduce them. An advance ruling system of this type could deter contrived avoidance schemes and increase certainty in the tax system. Australia has also introduced powers to fine those who promote schemes that could not reasonably be expected to work or comply with the advance ruling system.
“Promoters of ‘boutique’ tax avoidance schemes like the one brought to our attention by the case of Jimmy Carr, are running rings around HMRC,” said Margaret Hodge, chair of the public accounts committee.
“They create schemes which exploit loopholes in legislation or abuse available tax reliefs, such as those intended to encourage investment in British films, and then sign up as many clients as possible, knowing that it will take time for HMRC to change the law and shut the scheme down.
“Their clients can then take advantage of this window of opportunity to make a lot of money at the expense of the taxpayer, while the promoter simply moves on to a new scheme and repeats the process. It is a game of cat and mouse and HMRC is losing.
“It has allowed a system to evolve where the die are loaded in favour of the promoters of tax avoidance schemes. The complexity of tax law creates opportunities for avoidance, there are no penalties to stop people promoting these schemes, and HMRC is ineffective in challenging promoters who are deliberately obstructive or deliberately sell schemes they know do not work. Promoters pocket their fees whether their schemes work or not.
“There is also a lack of transparency that makes it very hard to find out who is involved in marketing or using these schemes. HMRC publicises details of schemes that do not work but does not name the promoters or the clients. We have seen how public anger and consumer pressure can influence large companies, such as Starbucks, to behave more responsibly.
“HMRC should publically name and shame those who sell or use tax avoidance schemes in order to discourage such activity. With at least £5 billion lost to tax avoidance each year, HMRC has got to get much more robust in its approach.
“The requirement that promoters give early notification to HMRC of new schemes has resulted in the swift closure of some. But the Department does not know how many promoters simply choose to ignore the requirement. We are also alarmed to hear that promoters are getting off paying fines for not disclosing their schemes by pleading that, in the opinion of a QC, they have a ‘reasonable excuse’ for non-disclosure. HMRC is right to explore how to make it more difficult for this tactic to work.
“The number of cases HMRC takes to court is tiny compared to the overall caseload. It must make use of the additional resources it has been given to act much more urgently to investigate and close down new schemes and to bring more cases to court.
“Since our hearing, the Government has announced that it is consulting on draft rules designed to allow departments to ban tax-avoiding businesses from being awarded government contracts. This is a welcome move but we will want to monitor closely how any such rules are applied in practice.”
I wonder if the rules on banning tax-avoiding businesses from taking up government contracts will ever see the light of day?