HM Revenue and Customs (HMRC) strongly disputes the conclusions in the Public Accounts Committee (PAC) report and challenges the Committee’s selective and misleading use of figures.
HMRC seeks to collect the tax that is due from all taxpayers, so that everyone pays their fair share in accordance with the tax laws passed by Parliament. We have secured more than £50 billion of additional tax from our compliance work since 2010, including £23 billion from large businesses. We have carried out 2,345 prosecutions for tax evasion in the last three years, including of high-profile accountants and lawyers, have halved the number of disclosed tax avoidance schemes and have protected more than £2.4 billion from marketed tax avoidance schemes this year alone.
As a result of HMRC’s sustained efforts, the tax gap – the proportion of taxes that are due which are not collected – has fallen from 8.3% in 2005/06 to 7% in 2011/12. If the tax gap had remained at the level it was at seven years ago, we would be collecting £7 billion less each year.
HMRC’s methodology for measuring the tax gap is robust and has been endorsed by the International Monetary Fund (IMF). Contrary to what the PAC report says, the published tax gap does include a measure of the tax lost from avoidance, as well as evasion, but it can only measure non-compliance with existing tax law – it cannot estimate how much tax might be due if tax laws were different.
HMRC can only bring in the tax that is due under the law and we cannot collect what is not legally due, however much the Committee might want us to. The Public Accounts Committee already knows that we cannot prosecute multinational companies for activities that are lawful within the international tax framework and has itself acknowledged that the kinds of international tax planning by large businesses that it has reviewed are lawful.
We do not hesitate to take large businesses to court if necessary to secure the tax they owe and would consider prosecution in any case where we suspect that we have been misled or information had been withheld from us. We secured eight court wins against large businesses in the first half of this year alone, protecting over £1 billion of tax from avoidance.
The Controlled Foreign Companies rules protect the UK from tax avoidance through the artificial diversion of profits by UK groups to subsidiaries in countries with very low rates of tax. The rules were enacted by Parliament after extensive public consultation and Parliamentary debate. In his recent Autumn Statement, the Chancellor announced a proposal to strengthen the Controlled Foreign Company rules, which will be put to Parliament in the 2014 Finance Bill.
The Committee’s unjustified criticism is not a fair reflection of the dedication of our 65,000 staff, whose work has helped the UK achieve one of the best levels of tax compliance in the world. And it risks undermining the confidence that the compliant majority of UK taxpayers have in the excellent work they do.