Chair's statement: Effective management of tax reliefs

21 November 2014

A statement from The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts:

Tax reliefs designed to encourage a change in behaviour, such as promoting jobs and growth or investment in the arts, also create opportunities for exploitation. With this in mind, it is beyond belief that HMRC has not put in place a framework or principles to guide how it manages and administers tax reliefs.

Despite voicing our concerns time and again, I am deeply concerned that HMRC’s failure to routinely monitor the costs and use of some tax reliefs means that abuse or fraud could go undetected. HMRC argues that it ensures taxpayers comply with tax rules by examining how individuals and companies pay tax, and does not need to monitor how reliefs themselves are used. This approach means that HMRC might respond too slowly to changes in how tax reliefs are used, leaving the door open for tax avoidance. 

It’s reprehensible that, until 2013, HMRC did not monitor the huge rise in claims for share loss relief in 2006-07, even though it had identified large-scale avoidance schemes worth around £330 million in tax. Likewise, it’s astonishing that it has done little to investigate whether the 500% increase in the cost of entrepreneurs’ relief since its introduction in 2008-09 might be a result of abuse, despite this relief costing the exchequer around £2 billion more than published forecasts suggested.

It is positive to see some proactive monitoring by HMRC for some of its tax reliefs, but there needs to be much more of this if HMRC is to up its game to guarantee value for money for the taxpayer.

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