Politicians have finally decided that Britain’s £100 billion tax relief system is a mess with no one in control of how they work.
Now, they want a tax framework to consider the impact of tax relief on individuals, businesses and the public purse.
HM Revenue & Customs (HMRC) has to monitor 1,128 tax reliefs, from personal tax allowances to film tax relief.
Although the Office of Tax Simplification has recommended scrapping 47 reliefs, the government has introduced another 134 reliefs since 2011.
In some cases, HMRC is not even clear which reliefs are tax expenditure – and only 46 of 150 tax expenditures are monitored to ensure no tax evasion is taking place.
Tax system in a mess
The mess of Britain’s tax system, which seems mainly out of control because no civil servants are tasked with scrutinising tax reliefs to see that they are working as intended, is revealed in the report Tax Reliefs from Parliament’s Public Accounts Committee.
MPs, headed by committee chair Margaret Hodge, accused governments of giving away tax reliefs on the hoof without setting up a system for establishing whether the costs involved are actually met and that tax reliefs are only examined when tax loopholes that were not envisaged when the law was introduced emerge.
“Every new relief adds a layer of complication to the tax system and makes the law more difficult to interpret for businesses and individuals,” said Hodge.
She explained no one in government knows whether some tax reliefs are working and how much tax will be gained or lost by their introduction – giving the effect of agricultural property and business property reliefs on inheritance tax as examples.
No one in control
“HMRC must improve monitoring systems that are insufficient for collecting information from taxpayers and presenting reviews of how tax reliefs are working to Parliament,” she said.
- A clear policy to manage tax reliefs should be introduced by the Treasury and HMRC
- MPs should get more feedback on how all tax reliefs are working, rather than information about a selected few
- Define which reliefs are tax expenditures and improve the management and reporting of them to MPs.
- Tell MPs about new tax avoidance issues
- Work harder to simplify the tax system.
Hodge cited film tax relief as a typical problem for HMRC.
“Because data is not available until taxpayers submit their returns and HMRC takes time to react to the data, it’s not always obvious when a tax relief is not working,” she said. “In the case of film tax relief, HMRC took 10 years and spent £2 billion closing a loophole which might not have been there if the relief was considered more carefully before introduction.”
