Tax avoidance schemes 'utterly immoral', says Hodge
Tax avoidance schemes, such as the one used by comedian Jimmy Carr, are "completely and utterly immoral", Margaret Hodge, chair of the Public Accounts Committee (PAC), has said.
MPs on the committee have been questioning tax advisers and operators of tax avoidance schemes.
She said these firms were "running rings" around the tax authorities.
These schemes have attracted billions of pounds of investment over the past 15 years. Many have now been closed.
In sometimes heated exchanges, Mrs Hodge argued that tax avoidance schemes were being used for a purpose not intended by Parliament and that it was not simply wealthy investors being marketed to.
"There are a lot of ordinary people who are being scammed", she said.
She added that the public would consider such schemes as "completely and utterly and totally immoral" and that those involved in devising and marketing them were "running rings round" HM Revenue and Customs (HMRC).
Aiden James, director of Tax Trade Advisors, a firm that markets tax avoidance schemes to clients, told the Committee that "tax law is very complex and tax planning is a grey area".
He admitted that companies like his exploit loopholes in tax law to gain a tax advantage for their clients.
He claimed that every scheme his firm promoted had been cleared by HMRC, but admitted that all of them have since been declared illegal and shut down.
One such scheme, known as Working Wheels, involved the setting up of a business purportedly selling second-hand cars to help wealthy clients reduce their tax liability.
Mr James said he expected HMRC to change the law far more often than it did to prevent such schemes being set up and was surprised when it did not.
In a recent report into tax avoidance, the National Audit Office found that HMRC had taken only 11 of these schemes to court, despite hundreds of them springing up over the last four years.
Under the Disclosure of Tax Avoidance Schemes legislation (DOTAS), new tax avoidance schemes have to be reported to HM Revenue & Customs, which then issues that scheme with a number indicating it is aware of it.
Crucially, HMRC does not rule against the scheme's legality at that stage giving tax advisers a window of opportunity in which to attract investment and make money before the scheme is eventually declared illegal and shut down.
Since DOTAS was introduced in 2004, HMRC has initiated 93 changes to tax law.
Despite this, about 100 new avoidance schemes have sprung up in each of the last four years, as promoters simply adapt to the new laws.
The NAO concluded that "there is no evidence that the use of such schemes is reducing".
Tim Levy, director of Future Capital Partners, a firm specialising in film investment schemes, admitted that over half of the firm's 255 investments had subsequently been investigated by HMRC. One scheme, called Terra Nova, was shut down in 2007.
Clients were encouraged to invest money supposedly to support the UK film industry and were then loaned money back, exploiting government tax relief rules on investment in new British films - so-called sale-and-leaseback schemes.
But a fifth of the films, such as Pirates of the Caribbean I and II, had already been made and investors were merely buying a share of the rights.
And about half the films by value were US-made, admitted Mr Levy.
A billion pound deal with a film company could earn over £100m in tax relief for its investors.
Since 2006, Mr Levy said his firm had moved away from film investment and towards property and renewable energy projects. Between 2008 and 2012 his schemes had attracted £1.5bn in investment, he said.
Ms Hodge engaged in angry exchanges with Patrick McKenna, chief executive of Ingenious Media, another firm specialising in film investment,
Mr McKenna said: "I can tell you categorically that we are not in the business of tax avoidance."
But Ms Hodge hit back, saying: "People like you used this legislation for a purpose not intended by Parliament", a claim Mr McKenna strenuously denied.