There will be four components to the Value Added Tax (VAT) Inquiry:
- Tax Gap—HMRC estimates that it was unable to collect £12.6 billion of VAT in 2015-16. The Committee will examine the root causes of this, how it might be addressed, and the vulnerability of the UK’s tax base.
- Brexit—The UK is currently part of the EU harmonised approach to VAT. The Committee will look at the opportunities and challenges of Brexit for the UK’s VAT regime.
- Business—VAT is notoriously complex and burdensome for businesses to cope with. The Committee will explore what aspects of VAT cause the biggest problems for business, how they might be improved, and how disagreements between businesses and HMRC about how much VAT is due can be resolved quickly and fairly.
- Good Tax Policy—The Committee will scrutinise how VAT measures up against the principles of good tax policy, and how the process of making VAT policy could be improved.
Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee, said:
"HMRC collected around £124 billion in VAT last year—over a fifth of the UK’s total tax take—and failed to collect around £12.6 billion in VAT. The reasons for why VAT is so vulnerable are somewhat opaque, so the Committee will examine how this might be addressed.
Brexit may provide both opportunities and challenges to the UK’s approach to VAT. The Government may choose to stick to a broadly similar structure to what currently exists, change it, or abolish it completely.
We’ll examine the chief concerns for HMRC and businesses going forward, and what impact Brexit will have on HMRC’s efforts to reduce the VAT element of the tax gap."
Tax Avoidance and Evasion
The Treasury Sub-Committee will scrutinise the steps that HMRC has taken to address public concerns about the actions of individuals and businesses determined not to pay their fair share of tax. It will examine the amount of tax lost to avoidance and offshore evasion.
It will also look at whether HMRC has the resources, skills and powers needed to bring about a real change in the behaviour of tax dodgers and those who profit by helping them.
John Mann MP, Chair of the Treasury Sub-Committee, said:
"Tax avoidance and evasion remain matters of serious public concern. HMRC has been given additional funds in recent years to address the issue, yet the tax gap for avoidance and evasion is still billions of pounds.
The Sub-Committee will look into how well HMRC has used these additional funds to close the tax gap, whether its strategy to reduce avoidance and offshore evasion has worked, and whether HMRC’s resources are sufficient.
We’ll be pressing those who seek out loopholes to get out of paying tax and the organisations that help them to give answers to Parliament about the revenue that we are all losing out on.
And we’ll be looking in depth at avoidance and evasion in the UK’s Crown Dependencies and Overseas Territories, and asking questions of those responsible.
Over the next few months, we’ll be holding all those involved to account to make sure that no one—however wealthy—can dodge paying the tax they owe."
The Conduct of Tax Enquiries and the Resolution of Tax Disputes
HMRC carries out enquiries to check in detail that the information on a tax return is correct and complete. This may reveal disagreements about the amount of tax due. In its code of governance for resolving tax disputes, HMRC outlines internal governance processes that are intended to ensure that it deals with all tax disputes fairly and in an even-handed manner.
Nevertheless, some people question whether HMRC does 'sweetheart deals' with—and shows preferential treatment to—big business, and others feel that they have received harsh treatment from HMRC. The Treasury Sub-Committee will examine whether HMRC’s approach to conducting tax enquiries, resolving tax disputes, and determining the amount of tax to be paid meets the standards set out in its code of governance. This will also cover agreements reached outside HMRC's formal enquiry process.
Mr Mann said:
"The Committee often receives representations from people who feel that HMRC’s enquiry process treats them unfairly. Some have accused HMRC of offering more advantageous terms of settlement to big business than small businesses or individual taxpayers receive.
There are concerns about the extent to which HMRC balances its responsibility to collect the right amount of tax due against its obligations to administer the tax system fairly and even-handedly.
Whilst we cannot look into individual cases, the Sub-Committee will examine whether HMRC is meeting the standards of its internal governance processes that are intended to ensure that it deals with all tax disputes fairly."