Britain's tax relief loopholes are a '£100bn recipe for abuse' say MPs

Public Accounts Committee criticises the Treasury for lack of definition and poor management of systems

associate business editor

Britain's 1,128 tax reliefs will today be savaged as a £100bn recipe for abuse, avoidance and evasion by an influential committee of MPs.

A report by the House of Commons Public Accounts Committee will lambast the system as "substantial, complex and poorly managed". And it warns that government departments are struggling to cope with the growing demands of managing the ballooning number of them.

It highlights what it calls the country's "poorly designed" film tax relief as an example of how Britain's tax avoidance industry has exploited loopholes for wealthy clients. The report says it took 10 years to resolve and cost the Exchequer £2bn.

Another controversial programme highlighted by the committee's chair, Margaret Hodge, is late-night taxi relief, which exempts employees who are supplied with them from facing income tax charges for "benefits in kind".

Ms Hodge said that rather than helping shift workers it had ended up benefiting the often expansively paid employees of big law and accountancy firms. This, she said, made it "hard to justify".

Earlier this year Ms Hodge suggested the Tory-supporting Take That star Gary Barlow might consider handing back his OBE over his investment in the Icebreakers partnerships, billed as music-industry investment schemes but later ruled by a judge to be a tax avoidance scheme.

The report criticises what it argues is a "lack of transparency and accountability" for reliefs more generally, saying there are "no adequate systems of control".

The report explicitly criticises George Osborne's Treasury for promising in 2010 to develop a framework for new tax reliefs, on the basis that they should only be introduced "when there is a strong and proven case".

"It has not done so," the report says. "Without a clear framework or adequate definitions to distinguish between different types of relief it is not possible to categorise reliefs effectively, and to understand how they should be managed."

Despite pledges to simplify Britain's complex tax system, a further 134 reliefs have been introduced since 2011, against just 43 that have been abolished.

Tax expenditures – reliefs designed to encourage certain behaviours – are, the report says, often used as alternatives to spending programmes without the same level of oversight.

The report calls for more simplification, better monitoring and sanctions to discourage tax advisers such as London's big accountancy firms from promoting aggressive tax avoidance schemes.

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

"If the Government chooses to spend £100bn on tax reliefs, at a time of austerity, this expenditure should be considered in the same way as spending programmes. Many tax reliefs are introduced without clear objectives and are not evaluated as fully."

Kevin Nicholson, the head of tax at accountancy firm PricewaterhouseCoopers, said: "I think it's good there's a review of the tax reliefs in the system – it's important to check they're all effective."

He called for attaching "sunset clauses" to reliefs. They effectively act as sell-by dates on new legislation, allowing it to be re-evaluated after a time.

"When it comes to introducing new reliefs, we have long held that sunset clauses could be a sensible step to prevent clogging up the tax system, providing a clear opportunity to assess if a relief is working as intended," he added.

Spire Healthcare: In sickness and in wealth

A healthcare company making use of a controversial tax loophole exposed by The Independent and Corporate Watch last October is to join London's stock market flotation boom.

Spire Healthcare, owned by private equity firm Cinven, operates 39 private hospitals, making it the second biggest chain in the UK.

Spire reported revenues of £764.5m and earnings of £209m last year, derived from the NHS as well as mixture of self-pay and private medical insurance.

The investigation revealed it was among more than 30 UK companies benefiting from what has become known as the "quoted Eurobond exemption", which involves companies cutting their taxable UK profits by taking high-interest loans from their owners through the Channel Islands Stock Exchange.

A spokesman for Spire said that the arrangements "are common across the industry" and interest levels were "reviewed and agreed with HMRC".

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