In a damning report, PAC described HMRC’s reporting of its own performance as “too confusing” and called on the tax authority to address the perception that it does not pursue tax fraud by the wealthy.
Tax fraud is believed to cost the UK £16bn ($22.6bn, €20.1bn) each year, half of the UK’s £34bn tax gap.
The Revenue was also criticised for not doing more to reduce the level of losses, which have remained “relatively consistent” over the past five years.
Woefully inadequate
The report stated: “We concluded in November 2015 that the number of criminal prosecutions for offshore tax evasion was still ‘woefully inadequate’.
“The evidence we heard from HMRC did not convince us it properly understands the effectiveness of the different enforcement and deterrent tactics it employs."
“HMRC told us that it needs to send the clear signal that anyone who evades tax runs the risk of prosecution.
“The failure to prosecute more than one individual from the Falciani list, 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.”
Credibility at risk
Meg Hillier MP, chair of PAC, said: “The scale of tax fraud, both in cash terms and as a proportion of uncollected tax, demonstrates just how vital it is for HMRC to bring focus to its efforts in this area.
“The release of the ‘Panama Papers‘ underlines that there are wealthy people and companies who 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.
“The department must be far clearer with parliament and the public about its strategy for combating tax fraud and the impact of that strategy on the tax gap. To achieve this it needs a better grasp of its own work.
“The evidence we heard from HMRC did not convince us it properly understands the effectiveness of the different enforcement and deterrent tactics it employs. This is a fundamental weakness in its strategy,” she said.
Recommendations
PAC has urged HMRC to “clearly set out in its annual reports the relationship between its compliance yields and changes in the tax gap”, and also publish this information “in a way that is accessible for everyone to understand”.
It also called on HMRC “to increase the number of investigations and prosecutions, including wealthy tax evaders, and publicise this work to deter others from evading tax and to send out a message that those who try will not get away with it”.
HMRC responds
“HMRC is one of the most effective tax collectors in the world, getting 93 pence of every pound due. Few other countries have a smaller tax gap,” an HMRC spokesperson said.
“We remain relentless and strategic in tracking down the few that try to get out of paying their fair share. 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,” the spokesperson added.
