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More than £10bn of tax is at risk from contrived avoidance by individuals and smaller businesses, according to the latest report from the National Audit Office (NAO).
HMRC are currently faced by 41,000 cases of marketed avoidance schemes – and the department has not demonstrated it can reduce the figure, the NAO found in its examination of the disclosure of tax avoidance schemes (DOTAS) regime.
The document Tax Avoidance: Tackling Marketed Avoidance Schemes claims DOTAS has helped the Revenue make headway in reducing the opportunities for legal tax-dodging – but there is little evidence the taxman is making progress in preventing the sale of contrived avoidance schemes to a large number of taxpayers.
“There continues to be an active market of schemes,” the audit office reports, adding that tax officials have been unable to enforce compliance with DOTAS on promoters determined to avoid disclosure.
More than 100 new avoidance schemes have been disclosed under DOTAS in each of the past four years, but there is no evidence that use is reducing – although tax practitioners believe the 93 changes to law aimed at tacking avoidance have reduced opportunities and the larger accountancy firms are now less active promoting schemes, with most being pushed at clients by small specialist tax advisers.
The large number of users of mass-marketed avoidance opportunities presents a challenge to HMRC, according to the NAO.
The tax department has identified around 30,000 users of partnership loss and disguised remuneration schemes, which it has sought to tackle by litigating a few lead cases to demonstrate to other users that they will not succeed in the courts.
In spite of the good success rate for the Revenue when it litigates, investigations can take many years to resolve and the department cannot always successfully apply the rulings in lead cases to other proceedings.
NAO head Amyas Morse urged the taxman to “push harder” to find an effective means of clamping down on the promoters and users of the “most aggressive” schemes.
“It is inherently difficult to stop tax avoidance as it is not illegal, but HMRC need to demonstrate how they are going to reduce the 41,000 avoidance cases they currently have open,” he added.
The auditor’s report was criticised by the Association of Revenue and Customs (ARC) for failing to address the issue of resources for tackling marketed avoidance opportunities.
“The one sure way to tackle the mountain of open avoidance cases and the lengthy litigation queue would be by investing in HMRC’s tax professionals, lawyers and accountants,” claimed Gareth Hills, president of the trade union that represents senior Revenue staff members.
He added, “As ARC made clear in its recent evidence to the House of Commons Treasury sub-committee, the government needs to invest in HMRC to ensure avoidance and evasion are effectively countered, both now and in the future.”
