HM Revenue and Customs is “unacceptably slow” at taking action against tax avoiders, which in turn is reducing the government’s ability to raise revenue, MPs have concluded.
The report by the public accounts committee into improving tax compliance has also found that the agency has overstated the success of its attempts to crackdown on the practice because of a £1.9bn error in its calculations.
Released on Tuesday by parliament’s spending watchdog, the report will increase pressure on tax officials, including Lin Homer, the permanent secretary at HMRC, who was questioned closely by MPs over her agency’s lack of progress. But it will also make uncomfortable reading for David Cameron, who claimed this week that the government was at the forefront of international attempts to claw back money from those wealthy individuals and multinationals avoiding paying tax.
Margaret Hodge, the chair of the committee, said she was disturbed to discover that tax officials were failing to halt tax avoidance schemes, partly due to delaying tactics by scheme promoters.
“HMRC must do more, faster. It should report on the progress it has achieved by using new powers granted by parliament to tackle tax avoidance and show it is using its existing powers with sufficient urgency,” she said.
Delays in dealing with the controversial Liberty scheme – which created a tax loss for investors including the singer Katie Melua that could be offset against other income – have meant that the case has only been taken to a tribunal this year despite being shut down in 2009.
MPs warned that up £10m of the £400m tax at stake in the scheme may not be recoverable because HMRC failed to start inquiries into 30 cases within the legal deadline.
Hodge added: “This may be just the tip of the iceberg... Although HMRC says Liberty was an exceptional case among the 750,000 personal tax return inquiries each year, it was unable to tell us how much delays had cost across the different tax avoidance schemes.” Melua has since paid her taxes in full.
HMRC also presented “misleading information” to Parliament about how much it has claimed by clamping down on tax avoidance, evasion and crime because of a £1.9bn error in the way its targets were set, the report found. This error was undetected for three years, the committee said.
HMRC said in a statement that tax officials have accelerated collection of tax from avoiders. “We will work closely with the National Audit Office to ensure there is no repeat of the base line error for which we apologised to the committee. However, even taking this into account we exceeded our targets for tackling tax dodgers and criminal gangs every year since 2010,” the statement said.
guardian.co.uk © Guardian News and Media Limited 2010