Crackdown on celebrity tax avoidance branded a failure
MPs have attacked the taxman for being too slow to crack down on controversial avoidance schemes used by celebrities and other high earners, resulting in millions of pounds being lost to the public purse.
As much as £10 million may never be recoverable because of delays by Her Majesty’s Revenue & Customs (HMRC) in making inquiries into tax returns by people who invested in the Liberty scheme, the Commons Public Accounts Committee said in a report today.
About 2,000 people used it to shelter money between 2005 and 2009, when it shut down. The singers Katie Melua, George Michael and Gary Barlow and actor Sir Michael Caine were named in a leaked document as among the participants.
Liberty worked by generating huge artificial losses offshore and allowing participants to avoid taxes on other income. The report revealed it took HMRC until this year to bring it to a tax tribunal.
MPs said that £10m of the £400m tax at stake from the scheme’s users might not be recoverable because in 30 cases, HMRC had failed to start inquiries into personal tax returns within the 12-month statutory deadline.
“This may be just the tip of the iceberg,” declared the committee’s chairwoman Margaret Hodge.
“Although HMRC says Liberty was an exceptional case among the 750,000 personal tax return inquiries each year, it was unable to tell us how much delays had cost across the different tax-avoidance schemes.
“HMRC says delays in recovering the tax withheld by those participating in tax-avoidance schemes are partly due to delaying tactics by scheme promoters. HMRC must do more, faster.”
The committee called on the taxman to report on the progress it had achieved by using new powers granted by Westminster to tackle tax avoidance. The report said it must also show that it was using its existing powers with sufficient urgency.
“HMRC does not do enough to tackle companies which exploit international tax structures to minimise UK tax liabilities,” claimed Ms Hodge.
“Recent changes to the UK tax regime, such as those for controlled foreign companies, have been challenged by international bodies like the OECD and European Commission as constituting ‘harmful tax practices’.
“These changes, including the introduction of the patent box relief, make it easier for global companies to avoid paying tax in the jurisdictions where they make a profit,” she said.
The report noted how in 2013/14 HMRC reported that it had exceeded its target for “compliance yield”; the additional tax revenue it generated from its work to tackle those who did not comply with their tax liabilities.
Yet the committee chairwoman described it as “amazing” that HMRC had made a £1.9 billion error when it established its baseline and set targets for its compliance work; meaning the department had been measuring its performance against a false base level.
Jonathan Isaby, of the TaxPayers’ Alliance, said: “The report is right to point the finger at HMRC but the real villains of the piece are the politicians who have created a tax code so complex that even the taxman can’t administer it.”
A HMRC spokesman said: “We have accelerated collection of tax from avoiders enormously – since the Government introduced accelerated payments, avoiders have already agreed to pay well over £25m. By 2016 we expect to have issued accelerated payment notices to around 43,000 avoidance users covering over £7bn.”
Melua reportedly put £850,000 into the Liberty scheme, but has since said she has settled her tax in full with HMRC. Barlow put £4.46m into the scheme, but has since apologised and said he was working to settle his bill.
