Loopholes cost HMRC £5bn a year, say MPs

 

The accountants and lawyers behind sophisticated tax-avoidance schemes, such as that once used by the comedian Jimmy Carr, are "running rings" around HM Revenue and Customs (HMRC), MPs warned last night.

The schemes are costing the Treasury £5bn a year by exploiting loopholes in a complex system designed to help businesses, the Public Accounts Committee (PAC) said.

The committee delivered a scathing verdict on the performance of HMRC, which it accused of losing "a game of cat and mouse" with companies that promote aggressive tax avoidance.

Its investigation followed the disclosure last year that Carr used the K2 scheme to cut his tax bill. In the face of a public backlash, he apologised for a "terrible error of judgement" and pulled out of the arrangement. In a highly unusual intervention in an individual's tax affairs, David Cameron alleged that money from ticket sales to Carr's shows was going into some "very dodgy tax-avoiding schemes".

The band Take That, the television presenter Gabby Logan and the former England football manager, Terry Venables, were among other celebrities who minimised their bills by using tax "management" schemes.

The committee said the HMRC should adopt a "much more robust approach" and consider "naming and shaming" the banks, accountancy firms and lawyers who advise rich clients on how to limit their tax liabilities. Its chair, the former minister Margaret Hodge, said: "We have seen how public anger and consumer pressure can influence large companies, such as Starbucks, to behave more responsibly."

The PAC warned of a "proliferation" of ways to take advantage of gaps in tax legislation. It said: "HMRC has allowed a system to evolve where the [dice] are loaded in favour of the promoters of tax-avoidance schemes.

"The complexity of tax law creates opportunities for avoidance, there is no effective deterrent to stop people from promoting avoidance schemes and HMRC is ineffective in challenging promoters who obstruct its attempts to investigate."

Ms Hodge said: "Promoters of 'boutique' tax-avoidance schemes like the one brought to our attention by the case of Jimmy Carr, are running rings around HMRC. They create schemes which exploit loopholes in legislation."

An HMRC spokesman said: "The Government recently announced an extra £77m in HMRC funding to tackle evasion and aggressive avoidance."

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