Hodge, who is chair of the Committee of Public Accounts, was speaking as the Committee published its 29th report on tax avoidance which has been compiled using evidence provided by HMRC, Tax Trade, Future Capital Partners and Ingenious Media.
Introducing the report, the Committee said tax avoidance, which it describes as “using tax law to gain a tax advantage not intended by Parliament”, reduces the money available to fund public services and is “completely unfair to the majority who pay the tax due”. It added that HMRC estimates that during the 2010-2011 tax year, £5bn was lost to tax avoidance and that a further £10.2bn is currently at risk from avoidance “over time”.
Name and shame
Urging for a much stronger approach to tackling the problem, Hodge said: “HMRC should publically name and shame those who sell or use tax avoidance schemes in order to discourage such activity… HMRC has got to get much more robust in its approach.”
Hodge also went on to highlight the role of the promoters in perpetuating the business of tax avoidance and called into question the current way in which HMRC deals with them. In particular, Hodge raised concerns that very few are ever actually punished for promoting schemes and many go on to promote new schemes time and time again.
“The requirement that promoters give early notification to HMRC of new schemes has resulted in the swift closure of some,” said Hodge. “But the Department does not know how many promoters simply choose to ignore the requirement.
“We are also alarmed to hear that promoters are getting off paying fines for not disclosing their schemes by pleading that, in the opinion of a QC, they have a ‘reasonable excuse’ for non-disclosure. HMRC is right to explore how to make it more difficult for this tactic to work.”
Currently those who create a tax avoidance scheme are required to notify HMRC of the scheme in order to comply with its disclosure regime. The Committee pointed out that this has allowed HMRC to act quickly to close some schemes down but added that HMRC “does not know how much avoidance is not disclosed but should be” and has only issued 11 penalties for non-disclosure of a scheme.
Look overseas
One way to help break the cycle, suggested the Committee, would be to adopt measures used elsewhere which have proved successful. One example the Committee cited is Australia where promoters are required to get clearance for schemes before they introduce them. The Committee said an “advance ruling system of this type could deter contrived avoidance schemes and increase certainty in the tax system”.
The Committee also pointed out that Australia has introduced powers to fine those who promote schemes that could not reasonably be expected to work or comply with the advance ruling system, and urged HMRC to look seriously at whether these and other measures could be effective in the UK.
To read a copy of the Committee’s report click here
