I was out and about yesterday and so had little time to read or comment upon the National Audit Office (NAO) report on HMRC and marketed tax avoidance schemes.
The summary looks like this. The NAO say:
Having introduced its disclosure regime in 2004, HMRC has made some important headway by closing legal loopholes and reducing the opportunities for avoidance. This changed the shape of the market, but has not prevented some promoters from continuing to sell highly contrived schemes to large numbers of taxpayers, depriving public finances of billions of pounds. There is little evidence that HMRC is making progress in addressing this problem and it must now be vigorous in seeking more effective counter-measures, proposing legislative change where necessary.
HMRC does not monitor the costs of its anti-avoidance work and has not yet identified how it will evaluate its overall anti-avoidance strategy. This reduces its ability to make informed decisions about where it should direct more effort, and how to best reduce the 41,000 open avoidance cases. HMRC cannot therefore demonstrate that its strategy to tackle marketed tax avoidance schemes provides value for money.
I am not surprised. There are many dimensions to this that are important.
First there is a considerable loss. I have, of course, argued this consistently since 2008.
Second, nothing HMRC has done has stopped the marketing of these schemes, so far. Again, this has been a recurring theme of this blog.
Third, HMRC is not winning cases it can identify. That is, of course, because it does not have the necessary resources to do so, as I have long argued.
Fourth, the HMRC data on the tax gap with all its inherent weaknesses is something I have long highlighted. Inevitably as a result their management of tax avoidance is flawed: if you base your performance targets on numbers produced for propaganda purposes you are bound to fail.
Fifth, what is very obvious is that HMRC's response is just not good enough. The government's lame General Anti-Abuse Rule is a watered down version of Graham Aaranson's already weak general anti-avoidance rule. It will be hard to operate, will be outside HMRC control and will instead be in the hands of the very tax professionals it is targeting and will only attack the "most egregious schemes at best'. A General Anti-Tax Avoidance Principle Bill is obviously needed instead. Only that has a chance of beating such abuse by looking at motive and not legal detail.
But finally, what this says is that HMRC is in denial on this issue, and that is most worrying of all. How can a body tasked with collecting tax be so clueless at its highest level about how to do just that?
We should be worried. Whilst HMRC fail the rest of us are suffering cuts. Let me assure you, treat this issue personally, because that's exactly the right way to think about it.
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Richard,
As is usually the case, I agree with the point you are making in this post, so please rest assured that this isn’t intended as nit-picking or to undermine your argument.
I agree, in fact, that the current draft GAAR is far, far too weak. However, my feeling when I looked at it when it was published was that it at least wasn’t quite as bad as the Aaronson version. I’m therefore intrigued to read that you consider it to be even worse.
Can you point me in the direction of the analysis that leads you to this conclusion?
Many thanks,
Z
I readily admit I have not written that, yet
‘But finally, what this says is that HMRC is in denial on this issue, and that is most worrying of all. How can a body tasked with collecting tax be so clueless at its highest level about how to do just that?’
I disagree with you here, Richard. I don’t think they are in denial. Nor do I think they are clueless (though I conceded the latter might apply to a degree given the rapid loss of staff with relevant expertise).
What has been happening is that HMRC senior management (including their various Boards) have been – and continue – taking a clear lead from signals given by their political boses and the Treasury. Since shortly after the 1997 election, this has consistently been to ‘go easy’ on these schemes and on avoidance more generally. Add into the mix an ongoing series of government efficiency drives – many of which result in various larger or smaller scale reorganisations causing disruption and loss of morale, and all of which result in loss of staff – and you have a perfect storm.
What has happened since 2010 is that the ‘message’ has become clearer, despite the rhetoric that might suggest otherwise, both because people aren’t stupid – they know the Tories are more relaxed about avoidance (‘tax is for the little people’) – and also because there have been a series of events that reinforce the political message, such as the appointment of directors to HMRC boards with the ‘appropriate’ (i.e. sympathetic to avoidance) business backgrounds, appointing a minister who appears to be an apologist for avoidance, and continuing to reduce the HMRC headcount and pool of expertise.
The result is predictable and inevitable, and manifests itself, for example, in programmes of work targetted at easy wins (‘low hanging fruit’ to use the dreadful term so many SPADS like to use nowadays) – many of which you highlight frequently here – and putting more effort and resources into PR than actually doing any tax collecting other than the easiest.
You may be depressingly right
In which case it is worse than I allege