Wealthy tax dodgers believe they can get away with fraud because HMRC doesn’t prosecute enough people, MPs have warned in a damning report.
The Public Accounts Committee today claims the public is missing out on £16billion a year from tax fraud – and HMRC has no clear strategy for dealing with it.
The report argues the rich believe they can get away with tax fraud as only one person was prosecuted following the leak of undeclared offshore accounts with HSBC’s private Swiss bank.
The report will prove highly embarrassing for David Cameron, who this week claimed HMRC is “taking very strong action” against tax dodgers in the wake of the Panama papers leak.
But the PAC report states: “HMRC must do more to tackle tax fraud and counter the belief that people are getting away with tax evasion.
“It needs to increase the number of investigations and prosecutions, including wealthy tax evaders, and publicise this work to deter others from evading tax and to send out a message that those who try will not get away with it.”
Meg Hillier MP, Chair of the PAC, said today: “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.
“The evidence we heard from HMRC did not convince us it properly understands the effectiveness of the different enforcement and deterrent tactics it employs. This is a fundamental weakness in its strategy.”
The report accuses HMRC of claiming far more success than it actually achieves, with the gap between how much is owed in tax and how much is collected “virtually static over the last five years.”
“The impact that HMRC claims for its work far exceeds any reduction in the tax gap,” the report says.
Other criticisms included:
- “HMRC could not tell us where it expects the tax gap to be in the long term as a result of its efforts.”
- “HMRC could not tell us how much resource it puts into tackling tax fraud compared to other types of compliance work, such as dealing with tax avoidance or error.”
- “HMRC told us it investigates around 35 wealthy individuals for tax evasion each year, but did not know how many wealthy individuals it had successfully prosecuted.”
- “HMRC does not know what meeting its target of 1,000 additional prosecutions has achieved…and it achieved this target by focusing on lower complexity cases.
- “HMRC claimed a financial impact of £295 million from this work in 2014-15, despite its own analysts being unable to verify that number.”
Last year, HMRC boss Lin Homer received a public dressing down by then-PAC chairwoman Margaret Hodge over the way the organisation operated.
Hodge said she wanted to “put a bomb under” Homer and her HMRC colleagues during their appearance before PAC.
She added: "You sit there waiting for people to come, you don't go out and police in the way that other authorities are doing, and therefore they're getting more money in, they're doing more litigation, and they're defending their taxpayers."
In February, at another appearance before the committee, Homer admitted that not everyone who dodges tax will be prosecuted.
She said: “Across the whole spectrum we do not prosecute everybody in every category, so there will always be individuals that we don’t prosecute.
She added, “It is fair to say there are some people who have evaded their tax in the past and will be in the future who will not be prosecuted because we will never prosecute everyone.”