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Taxman 'too cosy' with accountants


Chartered Accountants Ireland President Tony Nicholl warned that the current impasse at Stormont was threatening investment prospects

Chartered Accountants Ireland President Tony Nicholl warned that the current impasse at Stormont was threatening investment prospects

Chartered Accountants Ireland President Tony Nicholl warned that the current impasse at Stormont was threatening investment prospects

HM Revenue and Customs has "too cosy" a relationship with large accountancy firms which advise wealthy individuals and corporations on how to avoid tax, a parliamentary report has warned.

In a hard-hitting report, the House of Commons Public Accounts Committee said it did not believe HMRC and the Crown Prosecution Service were doing enough to bring tax cheats to court, with the tax authorities often preferring to come to arrangements with large companies to recover tax owed.

Committee chair Margaret Hodge, said the PAC's investigations over the past five years had exposed how companies like Google, Starbucks and Amazon used "artificial structures and complex transactions" to move profits out of the reach of the UK taxman.

And she said hearings with the "Big Four" accountancy firms had laid bare the existence of a "tax avoidance industry" of accountants, advisers and lawyers, "all of whom are making lucrative business out of designing and selling ways for their clients to avoid tax".

She named PricewaterhouseC oopers (PwC) as one of the firms which were "selling these schemes on an industrial scale".

Mrs Hodge - who has been a scourge of tax-dodging multinationals in her five years at the helm of the committee - said it was "disappointing" that HMRC had rejected the PAC's call for a tougher code of conduct for tax advisers. She welcomed Chancellor George Osborne's Budget announcement of new criminal offences for assisting tax evasion.

But the report was also critical of the Government, which it said had come into office committed to reducing the number of tax reliefs, only to preside over an increase of almost 100 to bring the total to 1,140.

The PAC said HMRC and the Treasury showed "a worrying lack of curiosity" about the cost of reliefs, and were slow to notice when they were exploited by tax avoiders. HMRC should recognise its responsibility for assessing the value for money of reliefs, such as a research and development tax break which had increased in cost from £100 million to more than £1 billion over 10 years while business in R&D remained unchanged. said the committee.

The report said that HMRC should be more "assertive" in making the case for the Treasury to provide more funds for it to take on tax avoiders and evaders. Its workforce had shrunk by some 24,600 between 2008 and 2014, even though every pound invested in taxmen delivered at least £10 in additional revenue, the committee found.

Constraints on HMRC resources left taxmen facing "an uphill battle" to tackle "a vast and sophisticated tax planning industry which supports aggressive tax avoidance by wealthy people and large companies".

The committee called on HMRC and the Government to tackle "widespread" tax avoidance by multi-national companies "more robustly" and said ministers should renew efforts to "radically reduce" the number of tax reliefs available.

The report said: "There are not enough prosecutions for tax evasion to act as an effective deterrent to those who break the law. HMRC clearly favours bringing in revenue quickly over prosecutions - which it told us can take many years to complete - but we are not convinced that they have struck the right balance between prosecuting tax evaders and allowing them to settle their affairs.

"The tax system relies on people following the rules, so HMRC needs to show that it comes down hard on tax cheats and change the perception that it is far too tolerant of those who break the law by hiding their income ... We are not persuaded that HMRC and the Crown Prosecution Service are doing enough to prosecute serious tax evasion cases."

Mrs Hodge said that tax avoidance was "a major issue of public debate and public concern" and that the committee's investigations had shone a light on "the unacceptable practices and sheer lengths that some companies go to in order to avoid paying the appropriate amount of tax on the profits they make from their activity here in the UK."

There were not enough prosecutions pursued to act as an "effective deterrent" to companies considering tax avoidance - or even evasion - which for some was "a risk worth taking", she said.

Mrs Hodge added: "Our hearings with companies such as Google, Starbucks and Amazon have exposed the artificial structures and complex transactions used to move profits out of the UK into low tax jurisdictions.

"Our hearings with the Big Four accountancy firms and promoters of marketed avoidance schemes have exposed a tax avoidance industry, comprising many large accountancy firms, tax advisers and lawyers, all of whom are making lucrative business out of designing and selling ways for their clients to avoid tax.

"Some of these firms, for example PwC from whom we took evidence, appear to be selling these schemes on an industrial scale.

"We remain concerned that HMRC's relationship with these large accountancy firms is too cosy, and it needs to get much tougher in challenging the advice they give to their clients."

An HMRC spokesman said: "We are pleased that the committee recognises the progress that HMRC has made in clamping down on tax evasion and avoidance, by relentlessly pursuing those who seek to cheat the system. We have shut down marketed avoidance schemes, closed loopholes, secured tough new enforcement powers, and opened up international information exchanges so rich evaders will have no safe havens where they can hide their money.

"As a result of our compliance efforts and the £1 billion extra investment over this Parliament, we have secured more than £100 billion in additional revenues in the past five years to pay for essential public services, raised penalties for tax evasion to 200% of tax owed and increased prosecutions five-fold."

A CPS spokesman said: "The CPS can only consider charges after a criminal investigation has been conducted and a full file of evidence submitted for consideration.

"The CPS considers each case carefully and will continue to work closely with the HMRC."