Tax officials wrongly calculated their own performance to make it look as if they had recouped nearly £2bn more in unpaid taxes than they actually had, MPs have revealed in a highly critical report into HM Revenue & Customs.
The spectacular blunder meant HMRC’s performance was massively overstated in its 2011-12 and 2012-13 annual reports, and as recently as May this year in a separate publication about its achievements, the Public Accounts Committee has disclosed.
“HMRC reported it had exceeded its targets significantly when in fact it had only just achieved the anticipated level of performance. Astonishingly, this significant error in a key performance measure went undetected by HMRC’s own system of governance and internal audit for three years,” the PAC report said.
Despite this, HMRC does not intend to change the way it monitors its own work.
The findings of HMRC’s tax compliance targets were just one of a host of criticisms into the way the tax office has been performing in preventing tax avoidance.
The report was particularly critical of the slow pace of the taxman in acting against people investing in anti-avoidance schemes of the type made famous by comedian Jimmy Carr and the pop group Take That.
It cited the example of one scheme, known as Liberty, which was closed in 2009, yet was only taken to a tax tribunal by the HMRC this year.
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Margaret Hodge, the chairman of the PAC, said: “Up to £10m of the total £400m at stake from the 2,00 users of this scheme may not be recoverable, because in 30 cases HMRC failed to start inquiries into personal tax returns within the 12 months statutory deadline.”
She added: “This may be the tip of the iceberg … HMRC must do more, faster.”
The tax body, which said it was addressing the PAC’s raised issues, was also harshly criticised for failing to do enough to tackle companies which exploit international tax structures to slash their UK tax bills.
The committee’s report took a cynical view of the actual benefits the Government’s new corporate tax-cutting policies had brought the country.
Many global companies have been attracted to the UK because of the so-called “patent box relief” – which reduces tax on patented goods and services. However, the report said research into seven such companies found they invested very little here, and created few jobs in return for the tax benefits they received.
“HM Treasury and HMRC should provide the committee with details of progress in identifying and addressing the ways that international tax structures are exploited, and set out the actual costs and benefits of recent changes to the UK’s tax regime,” Ms Hodge, the Labour MP for Barking, said.
The investigation also looked into how much revenue had been recouped from the use of the so-called Falciani list – a list of HSBC’s Swiss bank customers which was leaked by employee Hervé Falciani to European governments.
HMRC received the names of 130,000 potential British tax evaders in 2010, and has so far received £135m from them. That was significantly less than the £220m recouped in Spain and £188m in France.
HSBC charged in Belgium: Tax fraud allegedly began in 2003
Belgium has charged HSBC with allegedly helping Antwerp diamond tycoons avoid taxes. Belgian prosecutors charged the bank with tax fraud, criminal behaviour and money laundering on behalf of wealthy customers.
The alleged fraud began in 2003. HSBC, which has previously acknowledged the probe, said it was cooperating with the investigation. Belgium claims the fraud started as a way of circumventing new laws requiring EU member states to share information on how much their citizens were paying in interest.
HSBC is suspected of “knowingly promoting and encouraging fiscal fraud by providing its privileged clients with access to offshore accounts, mostly located in Panama and the Virgin Islands” to conceal their assets.