By Daniel Hunter
A new report has shown that there is little evidence that HMRC is making progress in preventing the sale of highly contrived tax avoidance schemes to a large number of taxpayers.
In each of the last four years, over 100 new avoidance schemes have been disclosed under DOTAS (the tax avoidance disclosure regime introduced in 2004 by HM Revenue and Customs). While HMRC believes most of these would be defeated if tested in the courts, there is no evidence that their usage is reducing.
HMRC has increased its focus on the tax affairs of high net worth and affluent individuals. While its high net worth unit set up in 2009 brought in £200 million of revenue that would otherwise have been lost in 2011-12, there are still 41,000 open avoidance cases relating to marketed schemes used by individuals and small businesses, and HMRC has yet to demonstrate how this number will be reduced.
The large number of users of mass-marketed schemes presents a challenge to HMRC. It has identified around 30,000 users of 'partnership loss' schemes and disguised remuneration schemes. It has sought to tackle such schemes by litigating a few 'lead cases' to demonstrate to other users that the scheme will not succeed in the courts. While HMRC has a good success rate when it litigates, its investigations can take many years to resolve and it cannot always successfully apply the rulings in lead cases to other cases.
HMRC has an anti-avoidance strategy, but does not monitor its costs and has not yet identified how it will evaluate its effectiveness. This limits its ability to make informed decisions about where to direct its avoidance activity.
"HMRC must push harder to find an effective way to tackle the promoters and users of the most aggressive tax avoidance schemes," Amyas Morse, head of the National Audit Office, said.
"Though its disclosure regime has helped to change the market, it has had little impact on the persistent use of highly contrived schemes which deprives the public purse of billions of pounds.
"It is inherently difficult to stop tax avoidance as it is not illegal. But HMRC needs to demonstrate how it is going to reduce the 41,000 avoidance cases it currently has open."
Join us on