2 HMRC's progress in tackling
tax avoidance |
15. HMRC has taken action to address some of the
Committee's previous concerns on tax avoidance.
However, it acknowledges that it can take a long time to investigate
avoidance cases and get them into court, and recognises that it
has to bring avoidance schemes to a conclusion more swiftly. For
instance, the Liberty scheme began in 2005 and was closed down
in 2009, but it has taken until 2014 for HMRC to take this case
to a tax tribunal.
HMRC told us that up to £10 million of the total £400
million tax at stake from the 2,000 users of this scheme may not
be recoverable because in 30 cases HMRC failed to start Section
9 inquiries (into a personal tax return) within the 12 month statutory
deadline. This may
be just the tip of the iceberg. Though HMRC suggested this failure
was an exceptional instance among the 750,000 Section 9s issued
annually, it was unable to tell us how much delays had cost across
the different tax avoidance schemes. HMRC accepts there have been
delays in the past in pursuing compliance proceedings against
tax avoidance schemes, partly due to delaying tactics and obstacles
put in their way by scheme promoters.
16. HMRC assured us that it has the right number
and quality of staff to tackle tax avoidance. It explained that
it had established a new counter-avoidance group, under an experienced
director, to put its anti-avoidance work and resources in one
place. HMRC also
told us that its investment in recruitment and training, such
as through its tax academy, means it can recruit high-calibre
graduates who value both the professional training and excellent
day-to-day work that HMRC offers.
Though there is movement of staff between HMRC and the private
sector, HMRC told us that it did not have a significant staff
17. This year's Finance Bill introduced a new accelerated
payments measure. HMRC predicted this will be a "game changer"
for tax avoidance schemes because it requires those in marketed
avoidance schemes to pay their tax bill up front if they want
to dispute HMRC's assessment of what they owe. HMRC said that
for promoters of avoidance schemes being able to delay any settlement
with HMRC for several years was in many ways as good as winning
the case. HMRC has
just published its list of 1,200 suspected tax avoidance schemes,
involving 33,000 individuals and 10,000 businesses, and covering
an estimated £7 billion potential tax revenue.
HMRC assured us that the accelerated payment scheme would reduce
significantly the backlog of tax avoidance cases and estimated
that it would bring in an additional £4.9 billion in extra
18. We queried whether HMRC's litigation strategy
for avoidance cases is too cautious. We have heard in the past
from the major accountancy firms that they would continue to promote
avoidance schemes even when there was a 50% chance of these being
HMRC told us that last year it defeated 30 avoidance schemes and
protected £2.7 billion through litigation. It said it is
proud of its 80% success rate in avoidance cases, arguing that
its high level of success is an important deterrent.
HMRC emphasised the importance of measures outside of litigation.
For example, it has not taken Employee Benefit Trusts to court,
and sees reaching a settlement as the most effective way of resolving
them. Unlike marketed avoidance schemes which often have a large
number of followers, Employee Benefit Trusts tend to be bespoke,
making individual case-by-case litigation costly.
19. We asked whether HMRC is doing enough to challenge
promoters of avoidance schemes. HMRC responded that new measures
in this year's Finance Bill would enable it to target those it
identifies as the high-risk promoters who continue to market aggressive
avoidance schemes. The measures would put additional obligations
on such promoters so HMRC would be able to monitor what they are
doing. Where HMRC
identifies new schemes as aggressive, it publishes a warning to
tax agents that the scheme is risky and will be challenged.
We have seen evidence that accountancy firms are continuing to
devise more complex tax avoidance schemes designed to get around
DOTAS (Disclosure of Tax Avoidance Schemes) rules and the new
General Anti-Abuse Rule. HMRC told us that it does not rely solely
on the DOTAS scheme to identify avoidance schemes, but also uses
risk assessment of returns, and monitors tax avoidance discussions
on internet chatrooms and other media.
20. HMRC told us about its progress in acting on
information from the Falciani list, which it received in 2010,
of 130,000 potential tax evaders using the Geneva branch of HSBC.
HMRC identified from this list 3,600 potentially non-compliant
UK taxpayers. To date, HMRC has received £135 million from
individuals on this list, compared to £220 million received
by Spain and £188 million received by France.
It does not have an estimate of the final expected yield. In respect
of the so-called Lagarde list (a shorter list of Swiss bank account
holders with potential UK tax liabilities), HMRC told us it was
making progress on the 15 civil investigation cases it had mentioned
when we took evidence on HMRC's 2012-13 accounts in October 2013.
In addition, there are a further 13 criminal investigations ongoing.
HMRC has secured one prosecution, which has generated fines and
compensation totalling £830,000.
HMRC does not know how the resources it commits to international
businesses' tax compliance compare with the resources that other
nations in Europe commit.
21. HMRC emphasised the importance of international
co-operation to increase the transparency between tax authorities
and multinational and tax authorities about where they operate
and where their profits are earned. It told us that the UK is
a leading participant in the OECD BEPS (Base Erosion and Profit
Shifting) project to address corporate tax planning strategies
that artificially shift profits to low tax jurisdictions, and
had led the way on improving international transparency over the
'beneficial ownership' (determining who has the benefits of ownership)
of businesses. The
OECD is due to report to the G20 on progress on the first 7 of
the 15 action points for the BEPS project in September 2014, and
the remainder in 2015. 
22. We raised concerns about the transparency of
UK limited companies which are controlled elsewhere, and so do
not file annual accounts in the UK.
HMRC was not able to tell us how many foreign controlled UK companies
did not file accounts with Companies House. It told us that HMRC
was making greater use of Companies House data, for example, to
cross-check annually for dormant UK companies.
23. There have been a number of recent policy changes
to the UK tax regime, including changes to the arrangements for
taxation of controlled foreign companies and the introduction
of the patent box, a relief allowing companies to pay a lower
rate of Corporation Tax on profits earned from patented inventions
and other innovations. HMRC told us that the costs and benefits
of these measures had been set out in consultation documents prior
to their introduction but we were not convinced that the expected
benefits had materialised.
Research into seven companies that had relocated to the UK for
tax purposes suggests that this has generated little inward investment
and job creation in the UK in return for the tax benefits the
We are also aware of international tax experts claiming that it
is easier for multinational companies to gain tax residency in
the UK than in the Netherlands. HMRC said that it did not recognise
this concern and told us that all EU tax authorities had to apply
the same tests on the control and management of operations.
24 Public Accounts Committee, HMRC Tax Collection:
Annual Report and Accounts 2012-13, Thirty-Fourth Report of Session
2013-14, 19 December 2013 Back
Q 92 Back
Qq 81-5 Back
Qq 44, 92 Back
Q 48 Back
Q 98 Back
Q 99 Back
Qq 44, 93 Back
Qq 87- 90 Back
Q 94 Back
Q 93 Back
Qq 56, 92 Back
Q 52 Back
Qq 47, 48 Back
Q 97 Back
Q 96 Back
Qq 101, 103-104 Back
Qq 100, 111 Back
Q 28 Back
Qq 50, 118 Back
Q 51 Back
Q 114 Back
Q 117 Back
Qq119-123; HMRC written evidence Back
Q 124 Back
Q 127 Back