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The National Audit Office (NAO) has told HM Revenue & Customs to toughen up on its regime, having found multiple holes at the department conducive to £5 billion in taxes being legally avoided by Britons in a single tax year.
Amyas Morse, head of the National Audit Office, said yesterday:
"HMRC must push harder to find an effective way to tackle the promoters and users of the most aggressive tax avoidance schemes. Though its disclosure regime has helped to change the market, it has had little impact on the persistent use of highly contrived schemes which deprives the public purse of billions of pounds. It is inherently difficult to stop tax avoidance as it is not illegal. But HMRC needs to demonstrate how it is going to reduce the 41,000 avoidance cases it currently has open."
The NAO went on to say that the large number of users of mass-marketed schemes presents a challenge to HMRC. It has identified around 30,000 users of 'partnership loss' schemes and disguised remuneration schemes, seen in the recruitment sector. It has sought to tackle such schemes by litigating a few 'lead cases' to demonstrate to other users that the scheme will not succeed in the courts. While HMRC has a good success rate when it litigates, its investigations can take many years to resolve and it cannot always successfully apply the rulings in lead cases to other cases.
HMRC describes tax avoidance as 'using the tax law to get a tax advantage that Parliament never intended'. Unlike tax evasion which involves fraud or deliberate concealment, tax avoidance is legal. However, it often involves contrived artificial transactions that serve little or no purpose other than to produce a tax advantage.
HMRC has a strategy to prevent, detect and counter-act avoidance. An important part of this strategy is a disclosure regime, known as DOTAS (Disclosure of Tax Avoidance Schemes). This regime requires those that design and sell certain types of tax avoidance scheme to tell HMRC about each new scheme they introduce and DOTAS has been expanded over time to include more taxes and more types of avoidance.
HMRC says it is consulting on how it might extend its powers to help it influence the behaviour of scheme promoters, and is piloting ways to discourage promoters from marketing aggressive schemes. Already, it says 93 changes to tax law have been made to curb avoidance.
The department is also evaluating the impact of the proposed General Anti-Abuse Rule (GAAR), which ministers have backed following a review by Graham Aaronson QC, yet the NAO cautioned that “at this point, it is unclear what impact it [the GAAR] will have.”
A Revenue spokesman, reported in the Daily Mail, defended its track record on avoidance. “HMRC has successfully challenged over 40 tax avoidance schemes through the courts in the last two years alone, successfully disrupting the avoidance industry through a combination of legal challenge and improved intelligence on new schemes, and protecting around £4 billlion.”
At Staffing Industry Analysts we reviewed Osborne Clark’s paper “UK Tax Avoidance in the Staffing Supply Chain” in our June citation, which is available here.