HMRC Doesn’t Know What It’s Doing With £155 Billion Tax Reliefs

Lisa Smith, BA (Hons), CeFA

The tax man is doling out billions in tax reliefs but doing little to monitor where the money is going, says a watchdog report.

Tax reliefs add up to around £155 billion a year and were introduced as measures to support government economic and social programs.

The review, by the National Audit Office, found 362 reliefs, like the Seed Enterprise Investment Scheme (SEIS)  for backing start-up companies and pension contribution tax breaks.

The NAO is worried the costs are spiralling – noting a 5% rise between 2014-15 and 2018-19 adding £8 billion to the bill.

But HMRC had only costed 111 reliefs, although plans to scrutinise more considered high risk by 2022.

Need for better oversight

“Evaluations show that their impact is not guaranteed, and many require careful monitoring. We have previously raised concerns about how effectively government is managing tax expenditures. Both HMRC and HM Treasury have responded to our recommendations by increasing their oversight of tax expenditures and actively considering their value for money,” says the NAO.

“On their own these improvements will not be sufficient to address value-for‑money concerns unless the departments formally establish their accountabilities for tax expenditures and enable greater transparency.”

The NAO study noted 23 tax breaks involved more than £1 billion each and comprised 92% of the 2018-19 tax relief budget for 2018-19.

No Plan B in place

Among these big numbers were tax breaks for pension savers, zero rated VAT on foods and capital gains tax private residence relief on the sale of a home.

The study went on to disclose that the Treasury failed to calculate the impact of tax breaks when they were introduced, and found no evidence that the government had a plan to deal with tax break costs or benefits that increased more than forecast.

Half the cases looked at were in line with forecasts, but data showed research and development tax credits and four smaller breaks had overrun forecasts by 50%.

“The Treasury and HMRC need to make substantial progress and ensure sufficient coverage and rigour in the work they undertake on this matter,” says the NAO report The Management of Tax Expenditures.

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