Coalition Creating More Tax Loopholes Than They Are Scrapping, MPs Warn

Osborne Has Created More Tax Loopholes Than He Has Closed
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Britain's Chancellor of the Exchequer, George Osborne, arrives at Lancaster House for a UK/China Financial Forum in London on June 18, 2014. AFP PHOTO / ANDREW COWIE (Photo credit should read ANDREW COWIE/AFP/Getty Images)
ANDREW COWIE via Getty Images

The coalition is continuing to create dozens of new tax reliefs - opening up fresh loopholes for the tax avoidance industry to exploit, MPs have warned.

The Commons Public Accounts Committee said that despite promising to simplify the tax system, the coalition had added to the complexity by creating almost three times as many new reliefs as those it had abolished.

While the committee welcomed the fact that HM Revenue and Customs was taking more tax avoidance cases to tribunals, it questioned whether there were sufficient sanctions available to prevent tax advisers from promoting "aggressive" avoidance schemes.

In March 2011, the coalition's newly opened Office of Tax Simplification carried out a review of 155 reliefs, of which it recommended that 47 should be scrapped.

While 43 of those were subsequently abolished, a further 134 new reliefs have since been created by the Government. As of December 2013, the coalition had managed to get rid of a total of just 48.

"Tax reliefs are a substantial, complex and poorly managed element of the tax system," the committee said. "Each new tax relief has made the tax system more complex, and provided an opportunity for avoidance and abuse."

The committee highlighted the "poorly designed" film tax relief, introduced by the last Labour government in 1997, which officials had estimated would cost the Exchequer £30 million over the first three years but which ended up costing £2 billion over the following decade.

Of the vast the backlog of 43,000 avoidance cases where the HMRC is still expecting to receive payment for outstanding tax, as many as 17,000 related to film tax relief.

The committee chair, Margaret Hodge, said it was an example of the way the "tax avoidance industry" exploited "loopholes" in legislation to devise and sell aggressive avoidance schemes.

"The government spends £100 billion every year on reliefs designed to encourage behavioural change, whether promoting jobs and growth, or investment in the arts," she said.

"Whilst well-intentioned, every one of these tax reliefs creates opportunities for avoidance and evasion.

"Much more radical simplification of the tax system is required if we are to get to grips with aggressive tax avoidance."

Politician Tax Avoidance Controversies
George Osborne (01 of05)
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The Chancellor was embroiled in his own tax controversy after Channel 4 reported in 2010 that he stood to gain more than £4 million from a family trust fund which would save him and fellow beneficiaries £1.6 million in inheritance tax. Osborne's spokesman seemed to accept that he would get his share of the family fortune tax-free, but that his share would still face death duties when he died.
Danny Alexander(02 of05)
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Osborne's Lib Dem deputy at the Treasury, Danny Alexander, admitted that he had used a tax loophole to not pay capital gains tax when he sold his taxpayer-funded second home in South London for £300,000 in June 2007.
Stephen Hammond (03 of05)
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Transport minister Stephen Hammond, who criticised Livingstone for axoiding tax, was reported to be an investor in a firm that also used tax breaks - and had failed to declare this to Parliament.Hammond is a partner in Harwood Film Partnership, which has deferred tax for its partners, the Guardian reported. The minister said that the scheme was legal and he did not have to declare his involvement.
Ukip leader Nigel Farage(04 of05)
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Nigel Farage, who previously railed against "rich people and successful companies" not paying their fair share, was reported to have funneled earnings into a company which meant he pays 20% corporation tax on profits of £45,000, rather than 40% income tax.According to the Mail Online, Farage set up a company, Thorn In The Side Ltd, to manage earnings he makes from media appearances and giving speeches. The newspaper calculates the arrangement saved him £11,097.93 last year.
Sajid Javid (05 of05)
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Back when culture secretary Sajid Javid worked as a £3million-a-year City banker, he reportedly received a huge bonus channeled through a tax haven.According to the Mail on Sunday, Javid was among a group of senior Deutsche Bank executives who received bonuses worth at least £50,000 each shares in a Cayman Islands company – to lower the company’s total tax bill.A spokesman for Javid said that he was paid with "all tax deducted already" and "did not personally receive any tax advantage whatsoever from these arrangements."