December 19, 2013 12:02 am

HMRC failing to pursue big companies over tax, say MPs

Margaret Hodge, who chairs the public accounts committee, accused HMRC of losing its nerve©Getty

Margaret Hodge, chair of the public accounts committee

The UK tax authority has failed to demonstrate that it is “on the side of the majority of taxpayers” by using its full range of sanctions to pursue unpaid tax, say MPs.

Margaret Hodge, who chairs the public accounts committee, said HM Revenue & Customs “pursues tax owed by the smaller businesses but seems to lose its nerve when it comes to mounting prosecutions against multinational corporations”.

The Revenue strongly disputed the committee’s conclusions and criticised MPs’ “selective and misleading use of figures”.

The committee attacked HMRC for collecting less tax in real terms last year than in 2011-12, despite its stated ambition to crack down on tax avoidance.

The ‘tax gap’ – a measure of the difference between what HMRC has collected and the amount that should be collected, rose £1bn to £35bn in the year to 2011-12, although in percentage terms it fell from 7.1 per cent to 7 per cent.

MPs said the “gap” failed to take into account all the revenue lost to avoidance schemes and voiced concern that HMRC had yet to test how existing tax law affects internet companies.

The committee urged the Revenue to be more willing to pursue prosecutions against individuals and large businesses “to test the boundaries of the law and to demonstrate firm action against those who have knowingly misled or withheld information”.

Incentives introduced to make Britain more attractive to international corporations could also enable them to avoid tax, the committee said, and urged HMRC to be “open about such consequences”.

MPs were “astonished” that the Revenue could not give any reasons for a shortfall in revenues from Swiss bank accounts.

Whereas HMRC predicted that it would collect £3.12bn of unpaid tax from UK holders of Swiss bank accounts, in 2013-14 it had so far secured just £440m.

MPs noted that there had only been one prosecution of 16 cases subject to criminal investigation that arose from the leaked “Lagarde list” of Swiss account holders.

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HMRC said it was pursuing litigation against businesses and that in the first half of 2013, it had secured £1bn through prosecuting eight large businesses for their involvement in tax avoidance. Its compliance yield increased from £18.6bn in 2011-12 to £20.7bn in 2012-13, including £7.5bn in extra revenues from large business, it said.

The Revenue said the “tax gap” methodology had been endorsed by the International Monetary Fund and could only measure tax lost from avoidance of existing laws.

“HMRC seeks to collect the tax that is due from all taxpayers, so that everyone pays their fair share in accordance with the tax laws passed by parliament,” it said.

MPs praised the implementation of real time information, a new system that underpins the universal credit benefit, which had “gone well”, but criticised the lack of a full disaster recovery arrangement.

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