Tax avoiders should be named and shamed, says watchdog
- 19 February 2013
- From the section UK
Tax avoiders should be "named and shamed" to discourage people from using legal loopholes to avoid paying their fair share, a spending watchdog says.
The Commons public accounts committee said HM Revenue and Customs (HMRC) lost out on £5bn a year and tax avoidance firms were "running rings" around it.
HMRC said it had a "good track record" of defeating such schemes.
Meanwhile, Labour leader Ed Miliband says firms in the UK should publish the amount of tax they pay in the country.
Mr Miliband has already called for greater transparency in corporate tax bills, but speaking during a visit to Scandinavia, he said if international action failed to deliver a change in corporate behaviour, the government should take action at home.
The House of Commons Public Accounts Committee (PAC) report warned the taxman was losing the "game of cat and mouse" to clients and promoters of tax avoidance schemes as they deliberately took advantage of the time it takes HMRC to shut such schemes down.
HMRC must start publicly listing promoters and those who use their schemes, the committee said.
Last year comedian Jimmy Carr said he had made a "terrible error of judgement" after it emerged that he had used a complex scheme to reduce his tax bill. The K2 tax-avoidance scheme Carr is said to have used enabled members to pay income tax rates as low as 1%.
Labour MP Margaret Hodge, who chairs the PAC, said: "Promoters of 'boutique' tax avoidance schemes, like the one brought to our attention by the case of Jimmy Carr, are running rings around HMRC.
"They create schemes which exploit loopholes in legislation or abuse available tax reliefs such as those intended to encourage investment in British films, and then sign up as many clients as possible, knowing that it will take time for HMRC to change the law and shut the scheme down."
Chas Roy-Chowdhury, head of tax at the Association of Chartered Certified Accountants, says naming and shaming is a dangerous game to play.
"Where do you draw the line?" he said.
"There isn't a clear cliff edge between what you could say is acceptable tax planning and what is unacceptable tax avoidance. I think there's some difficulty in terms of where do you pitch it in terms of where you name and shame."
Tax rules mean promoters must notify HMRC of new avoidance schemes, which has led to the swift closure of some, according to the PAC's report.
But it warned that officials did not know how many promoters were ignoring the requirement.
Mrs Hodge said: "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.
"The number of cases HMRC takes to court is tiny compared to the overall caseload. It must make use of the additional resources it has been given to act much more urgently to investigate and close down new schemes and to bring more cases to court."
Jim Harra, director general of business tax at HMRC, said it had a "good track record" of defeating tax avoidance schemes.
"There is a small hardcore of firms who are persisting in selling schemes which are of increasing poor quality to the public and we are making all the efforts we can to steer people away from these dubious schemes," he told the BBC.
He said the £5bn in income mentioned in the report represented 1% of all the tax HMRC collected every year, and it won 85% of all the tax avoidance cases it took to court.
Mr Harra also said HMRC already named avoidance schemes that had failed and the promoters who had pushed them.
A recent meeting of finance ministers of the G20 group of nations in Moscow pledged to crack down on tax avoidance by multinational companies.
The move, led by the UK, France and Germany, could see the development of measures to stop firms shifting profits from a home country to pay less tax elsewhere.