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HMRC accused of 'failing to check tax reliefs' by MPs

HMRC headquarters in London Image copyright Reuters

The UK's tax authority has been accused by MPs of failing to properly monitor the system of tax reliefs.

A report from the Public Accounts Committee (PAC) says HM Revenue and Customs (HMRC) underestimates the number of tax reliefs and does not properly count their cost.

The taxman does not check sufficiently to see if the reliefs are being abused, the MPs add.

The PAC said that HMRC does not know how many reliefs exist or their cost.

The huge burden of tax reliefs on the public purse is an issue that receives relatively little attention.

These are exemptions from tax law that are either designed to make the tax system fairer, such as the income tax personal allowance, or which are intended to change people's behaviour, such as tax reliefs for pension contributions, the newly announced personal savings allowance, or the various reliefs to encourage business investment.

'Worrying lack of curiosity'

HMRC lists just 398 reliefs, but the Office of Tax Simplification has counted 1,140 that the committee says cost more than £100bn a year in forgone tax.

Margarget Hodge, chairman of the PAC, said that HMRC and the Treasury displayed a "worrying lack of curiosity" about the true cost of all these tax reliefs.

She said both of the government departments had failed to measure if the reliefs provided value for money, or had led to taxpayers changing their behaviour in the way intended, such as by increasing their saving or investing.

"HM Treasury and HMRC do not keep track of those tax reliefs intended to influence behaviour," Mrs Hodge said.

"They do not adequately report to parliament or the public on whether reliefs are working as intended and what they cost and whether they represent good value for money.

Image copyright PA
Image caption PAC chairman Margaret Hodge

"HMRC does not effectively monitor changes in the cost of tax reliefs, so is slow in identifying instances where a relief is being exploited for a purpose parliament did not intend," she added.

The PAC recommends that HMRC devises and publishes an up-to-date list of tax reliefs, along with their costs and what the reliefs are supposed to achieve.

The MPs also said that HMRC should monitor the cost of tax reliefs closely to spot if they were being abused for tax avoidance.

However, the committee members found that HMRC had become much better at collecting taxes.

An HMRC spokesman said: "As a result of our compliance efforts and the £1bn extra investment over this Parliament, we have secured more than £100 billion in additional revenues in the past five years to pay for essential public services, raised penalties for tax evasion to 200% of tax owed and increased prosecutions five-fold."

'Too cosy'

The two reports published on Thursday by the PAC repeat some of its recent high-profile criticisms of HMRC.

It says the tax authorities are "too cosy" with big accountancy firms, have failed to prosecute enough tax dodgers, and are not keen to be more aggressive towards tax advisers who devise tax dodging schemes.

Mrs Hodge said: "HMRC needs to show that it comes down hard on tax cheats and change the perception that it is far too tolerant of these companies and individuals - in contrast to its treatment of small businesses and the majority of the public who pay their taxes through PAYE.

"We are not persuaded that HMRC and the Crown Prosecution Service are doing enough to prosecute serious tax evasion cases.

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