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MP Hodge attacked over report on tax breaks
The UK’s 1,100-plus reliefs are a “poorly managed” part of the tax system and continue to grow in number, creating opportunities for misuse, MPs have warned.
A new report from the Commons’ public affairs committee (PAC) highlights a “lack of transparency and accountability for tax reliefs and no adequate system of control”, partly as the result of the Treasury’s failure to follow up on its pledge to develop a framework for the introduction of new breaks – which the PAC insists should be introduced only when there is a “strong and proven case” in favour.
“Tax reliefs are a substantial, complex and poorly managed element of the tax system,” says the MPs’ document, which claims the Treasury and HMRC are unable cope with the increasing demands of managing rising numbers of tax breaks.
There were 1,128 at the end of 2013. The government axed 43 following recommendations by the Office of Tax Simplification in 2011, but 134 have since been added.
“Each new tax relief has made the tax system more complex and provided an opportunity for avoidance and abuse, either individually or in conjunction with other reliefs,” according to the report.
It goes on to highlight a lack of clarity about “whether the impact of particular tax reliefs on tax revenue streams is properly considered” and lambasts the Treasury and the Revenue for not keeping parliament adequately informed of changes in the costs of tax breaks.
“Parliament approves the introduction of new reliefs, and relies on accurate advice from the departments for it to make informed decisions. HMRC publishes online annual estimates of the cost of only 180 tax reliefs. However, there is no feedback mechanism to alert parliament, when the actual cost of tax reliefs varies from HM Treasury's original forecasts, on which parliament based its enactment and amendment of reliefs.”
The PAC – chaired by Margaret Hodge MP – has been criticised by the UK200Group of independent accountancy and law firms. Past president David Ingall called the new paper, Tax Reliefs, “utter rot”.
He said, “Yes, these reliefs are available. Yes, there are those who are prepared to abuse any tax … to their benefit – but why should everyone suffer because of a few? HMRC have more than enough weapons in their armoury to deal with those situations.
“Ms Hodge might as well argue that because a few people fail to declare all their self-employed income, it should be banned and that everyone should be an employee. In fact, why not go to the ultimate and declare that everyone must be employed by the government, and then these reliefs would not be needed and no one could abuse them?”
Paul Short of UK200Group member firm Lambert Chapman questioned the PAC’s motives. “The personal allowance is a tax relief. Does Margaret Hodge have a problem with that relief? Where do you draw the line?” he asked.
“Take entrepreneurs’ relief: It… is seen as demonstrably positive in that business owners can sell their firms earlier, rather than wait for retirement, to a purchaser who can move the business to a higher level with more profit and employment, rather than it stagnating with the ageing owner. Yet, it creates an opportunity for tax avoidance, apparently, notwithstanding the wealth creation for the country.”
David Whiscombe, director of tax at accountants Berg Kaprow Lewis, also attacked Hodge, claiming she should enter into a debate about what sort of tax system is preferable: a simple one or one that is fair.
“But having that debate is a great deal harder than grandstanding about ‘paying the right amount of tax’ and berating ‘opportunities for evasion’,” he said.
