HMRC criticised for failing to prosecute wealthy tax evaders
HM Revenue & Customs (HMRC) are failing to prosecute wealthy tax evaders, the Public Accounts Committee (PAC) has said in a new report.
The report comes following the Panama Papers leak, which exposed widespread tax evasion by the wealthy around the world, and says that HMRC lacks a clear strategy for tackling tax evasion or measuring the success of their efforts and had allowed too many wealthy tax evaders to avoid prosecution.
The percentage of missing tax money lost through fraud has remained static for the past three years, at around 3%, despite HMRC’s efforts, and currently costs the country £16bn every year.
Meg Hillier MP, chair of the PAC, said: “Honest taxpayers rightly expect a tax system that works fairly for all and any perception that this is not the case undermines the public’s trust in that system. Its credibility is at risk.
“The release of the ‘Panama Papers’ underlines that there are wealthy people and companies who seek to keep their affairs secret. Where this secrecy involves criminal activity, prosecution must follow – and the threat of prosecution must serve as an effective deterrent to others.
“The department must be far clearer with Parliament and the public about its strategy for combating tax fraud and the impact of that strategy on the tax gap. To achieve this it needs a better grasp of its own work.”
Lack of criminal prosecutions of wealthy evaders
HMRC only investigated one individual from the Falciani list of 3,600 potential UK tax evaders whose Swiss bank account details were leaked by a former HSBC employee and are no longer taking action.
More generally, they could not provide a list of how many wealthy individuals and companies they had prosecuted in the past five years because it did not measure prosecutions by the wealth of the target.
They said they currently investigate 35 wealthy individuals each year and aim to increase this to 100 by 2020.
An HMRC spokesperson said that tax evasion was “an absolute priority” and that HMRC had 26,000 staff focused on tax evasion, currently investigating 1,100 cases of offshore evasion, and had gathered £2bn in this way since 2010.
HMRC received £77m funding to help tackle tax evasion in 2012 after another critical PAC report.
However, the PAC said it was impossible to tell how effectively HMRC is addressing tax evasion because of a lack of clear measurements of its performance, and that HMRC had achieved its target of 1,000 additional prosecutions by focusing on lower-complexity cases.
Hillier also called it “a fundamental weakness” that HMRC lacked a clear understanding of its strategy and outcomes.
The report also found that HMRC had been slow to respond to the growing rise of VAT fraud by internet traders.
It recommended that HMRC should set out the effect its work is having on the tax gap in its annual report in a clearly understandable way; develop a strategy for tackling fraud by November 2016; increase the number of investigations and prosecutions and publicise that it is doing so; assess the optimum number of people to prosecute; and identify the size of VAT Internet fraud.
The Public and Commercial Services Union warned this week that the proposed privatisation of the Land Registry will make it harder to tackle tax avoidance.
(Image c. Joe Giddens from PA Wire/ Press Association Images)