Out-Law News 2 min. read
09 Nov 2015, 1:23 pm
The committee of MPs said that HMRC was not prosecuting enough people for tax evasion to act as an "effective deterrent", particularly to "wealthy individuals who hide their assets offshore". It said that HMRC's use of disclosure facilities, offering reduced penalties to taxpayers who voluntarily declared assets held offshore, was "not an adequate substitute for the deterrent effect of prosecution".
However, the committee also found that HMRC had collected £517.7 billion from UK taxpayers during tax year 2014/15, an £11.9bn increase from the previous year, at the same time as reducing its running costs. Tax expert Paul Noble of Pinsent Masons, the law firm behind Out-Law.com, said that some of the criticisms contained in the report were "unfair".
"HMRC is first and foremost a revenue-gathering body and not a prosecuting authority," he said. "Criminal prosecutions are labour-intensive, costly and far more challenging: compliance can be encouraged and the public interest best served through civil investigation with tough financial penalties where necessary. New powers and increased sanctions will be used in the fight against offshore evasion in the coming years, along with the increased transparency that automatic exchange of information will bring."
In July HMRC published a consultation document in relation to a proposed new 'strict liability' offence for offshore evasion. Under the proposal it will be an offence if a UK taxpayer fails to notify HMRC that they are chargeable to income tax or capital gains tax in respect of offshore income, assets or activities or fails to file a return or include such income or gains on a tax return.
Under the current law a taxpayer can only be guilty of a criminal offence if HMRC can prove that the failure was deliberate. Under the new offence the failure to declare the income or gains is sufficient and there is no need to prove that it was deliberate. The maximum penalty for the offence would be a prison sentence of up to six months.
"HMRC's efforts to tackle tax avoidance appear to have become more successful in recent years as a result of their efforts to dissuade would-be avoiders, those that promote schemes and through the introduction of new legislation such as the Accelerated Payment regime. This should not be lost, but the scale of this will always be difficult to measure," Noble said.
As reported by HMRC in September, the use of accelerated payment notices (APNs) by the tax authorities to demand up-front payment of disputed tax has enabled them to collect £1 billion in payments from users of tax avoidance schemes. APNs can be issued to users of schemes which demonstrate certain 'avoidance hallmarks' before a tribunal or court has decided whether or not the scheme is effective, but HMRC must repay the tax with interest if the case is taken to litigation and the taxpayer ultimately wins.
In its report, the PAC criticised HMRC for making "little or no progress on a number of important issues" raised by the committee in previous reports. In particular, it was concerned that the department still did not provide figures on the effectiveness of its compliance work, on the amount lost to "aggressive" tax avoidance and on the scale and nature of current tax reliefs.
It also said that HMRC's customer service remained "unacceptable", and that standards had in fact fallen further since criticism by the previous committee in March 2013. The PAC reported that HMRC answered 74% of telephone calls received by its call centres during 2011/12, but by 2014/15 this had fallen to 72.5%. It only answered 50% of calls during the first half of 2015, and could not provide the committee with any indication of "when or by how much" its customer service would improve.
Committee chair Meg Hillier said that HMRC's customer service record "could be considered a genuine threat to tax collection".
"It beggars belief that, having made disappointing progress on tax evasion and avoidance, the taxman also seems incapable of running a satisfactory service for people trying to pay their fair share," she said.