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The government abolished income tax relief for payment of patent royalties in December 2012 after HMRC found no evidence of any use of the break that was not for the purpose of avoidance.
Despite the action in that instance, the Revenue does not estimate the tax at risk or loss as the result of the abuse of reliefs but the amount is likely to be “significant”, according to the latest report from the National Audit Office (NAO).
The government abolished income tax relief for payment of patent royalties in December 2012 after HMRC found no evidence of any use of the break that was not for the purpose of avoidance.
Despite the action in that instance, the Revenue does not estimate the tax at risk or loss as the result of the abuse of reliefs but the amount is likely to be “significant”, according to the latest report from the National Audit Office (NAO).
The document aims to “put parliament in a position to consider whether the major elements in the management and responsiveness of the [tax reliefs] system are working adequately, or are in need of more focused attention”. It uses a basis of 46 costed reliefs to calculate that the public purse gave up £101bn in 2012/13.
The NAO notes that the HMRC do not evaluate tax breaks systematically, have commissioned few assessments of their impact, and do not routinely produce data on trends to track movements in reliefs.
However, the department has made broad calculations of the costs of 180 reliefs and reports annually on around 400.
The figures represent just a small proportion of the UK’s total number of tax breaks – which the NAO takes to be delivered through exemptions, deductions, credits, rate reliefs, tax-free thresholds, deferrals, and modifications of administrative policy for specified groups of taxpayers.
There are 1,128 reliefs currently available, representing an increase of 8.25% on the 1,042 identified in March 2011 by the Office of Tax Simplification, which reviewed a sample of 155 tax breaks and recommended the abolition of 47.
The government has since axed 48 reliefs but introduced 134 more, with the sum off all tax breaks as a proportion of GDP having risen from 16.3% to 21.3% since 2005/06.
The audit office intends to evaluate the administration of particular reliefs and report later this year.
“Tax reliefs are a powerful, important and long-standing element in our public finance system,” said NAO head Amyas Morse. “However, their implementation is subject to less independent scrutiny that that of other instruments of public policy.”
