Wealthy people are getting away with tax evasion because of a failure by HMRC to devise a strategy to deal with fraud, parliament’s spending watchdog has concluded.
The number of criminal prosecutions for tax fraud including offshore tax evasion was still “woefully inadequate”, the Commons public accounts committee said.
In a report released on Friday, MPs said the lack of an HMRC strategy was contributing to losses to fraud of £16bn every year.
It will increase pressure on the prime minister, David Cameron, over the government’s tax strategy days after the Panama Papers were disclosed by media outlets including the Guardian.
Meg Hillier, the chair of the committee, said the scale of tax fraud demonstrates how vital it is for HMRC to focus on this area.
“Honest taxpayers rightly expect a tax system that works fairly for all, and any perception that this is not the case undermines the public’s trust in that system.
“The release of the Panama Papers underlines that there are wealthy people and companies that seek to keep their affairs secret.
“Where this secrecy involves criminal activity, prosecution must follow – and the threat of prosecution must serve as an effective deterrent to others,” she said.
The committee examined HMRC’s strategy in curbing three types of behaviour that illegally deprive the exchequer of tax revenue.
They are tax evasion – when registered individuals or businesses deliberately conceal or misrepresent information to reduce their tax liabilities; the hidden economy, which involves people whose entire income is unknown to HMRC; and criminal attacks.
MPs found that HMRC is missing key information that would be necessary to inform a properly strategic approach. For example, HMRC could not say how much it spends tackling tax fraud compared with other types of compliance work, such as dealing with tax avoidance or error.
HMRC’s failure to devise a strategy is adding to a perception that wealthy people can get away with fraud, the committee found.
The prosecution of just one person from leaked documents from HSBC’s Swiss arm, which appeared to disclose examples of tax evasion, have added to that impression, MPs said.
The HSBC files were exposed by a consortium of journalists including the Guardian.
“The failure to prosecute more than one individual from the [HSBC files], HMRC having closed this case and the Financial Conduct Authority no longer taking further action, creates the impression that the rich can get away with tax fraud,” the report concluded.
The report also pointed out that HMRC officials could not say how many wealthy individuals they had prosecuted for tax evasion.
“HMRC needs to increase the number of investigations and prosecutions, including wealthy tax evaders, and publicise this work to deter others from evading tax,” the report said.
HMRC should set out its strategy to tackle fraud by November, and also take steps to “counter the belief that people are getting away with tax evasion”, the committee said.
MPs also called for clarity on the “growing risk” of VAT fraud by internet traders, and on the effectiveness of measures intended to tackle this fraud.
The Guardian last year exposed how the internet is being used to evade VAT by sellers using eBay and Amazon.
It has also emerged that Edward Troup, the head of tax at HMRC, will be questioned about the Panama Papers in June when he is due to appear before the committee.
He is expected to be asked about his time as a partner at a top City law firm that acted for Blairmore Holdings and other offshore companies named in the Panama leak.
A spokesman for PCS, the union that represents hundreds of HMRC’s civil servants, said the tax authority is not doing enough to tackle tax fraud because of cuts.
“We have said for years that tackling tax avoidance and evasion requires proper resources for HMRC and the political will to chase down wealthy individuals and organisations. This government fails on both counts,” she said.
A spokesperson for HMRC praised the UK’s tax collectors and claimed that most other countries have a bigger tax gap.
“Tackling tax evasion is an absolute priority for HMRC with 26,000 staff focusing on evasion, avoidance and fraud. We have increased prosecutions of wealthy tax cheats and our crackdown on offshore tax cheats has already brought in more than £2bn since 2010.
“HMRC is currently investigating 1,100 cases of offshore evasion, including 90 criminal cases, of which 29 cases are already in the court system, ensuring that no one is beyond our reach,” he said.
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