HMRC Allowing Rich to Get Away with Fraud, Say U.K. MPs

The U.K. Public Accounts Committee (PAC) criticized the tax authority for creating an impression that the “rich can get away with tax fraud,” after it prosecuted only one of 3,600 potential tax evaders whose Swiss bank-account details were leaked by a former employee of HSBC Holdings Plc.

The cross-party panel of lawmakers said the “perception that HMRC doesn't tackle tax fraud by the wealthy needs to be addressed.”

The U.K. is losing around 16 billion pounds ($23 billion) in tax revenue each year as a result of tax fraud, and Her Majesty's Revenue & Customs (HMRC) isn't doing enough to tackle the problem, the committee said in a report published April 15.

With HMRC having closed the case and the Financial Conduct Authority no longer taking further action, the end result “creates the impression that the rich can get away with tax fraud,“ the panel said.

‘Woefully Inadequate.' 

The committee noted that in its November 2015 report on HMRC's performance, the number of criminal prosecutions for offshore tax evasion was still “woefully inadequate” and the lack of prosecutions from the HSBC leak doesn't send a clear signal that anyone who evades tax runs the risk of prosecution.

HMRC told the committee it investigates about 35 wealthy individuals for tax evasion each year, but at the hearing didn't know how many persons considered wealthy it had prosecuted successfully.

Paul Conroy, senior press officer for HMRC, told Bloomberg BNA via e-mail April 15 that HMRC remains “relentless and strategic in tracking down the few that try to get out of paying their fair share” of tax.

He said 26,000 HMRC staff now focus on evasion, avoidance and fraud. “We have increased prosecutions of wealthy tax cheats and our crackdown on offshore tax cheats has already brought in more than £ 2 billion since 2010,” he said, adding that HMRC is “currently investigating 1,100 cases of offshore evasion, including 90 criminal cases, of which 29 cases are already in the court system, ensuring that no-one is beyond our reach.”

PAC: Increase Prosecutions, Publicize Work

The Public Accounts Committee, however, recommended that HMRC increase the number of investigations and prosecutions, “including wealthy tax evaders, and publicize this work to deter others from evading tax and to send a message that those who try will not get away with it.”

PAC Chair Meg Hillier added that the release of the Panama Papers also revealed that wealthy people and companies are seeking to keep their affairs secret. “Where this secrecy involves criminal activity, prosecution must follow—and the threat of prosecution must serve as an effective deterrent to others,” she said in a statement accompanying the report. “The evidence we heard from HMRC did not convince us it properly understands the effectiveness of the different enforcement and deterrent tactics it employs. This is a fundamental weakness in its strategy,” Hillier said.

Five Recommendations

The committee issued five recommendations to address current issues around tax fraud, saying HMRC should: 

  • increase the number of investigations and prosecutions, and publicize its works to deter fraud;
  • set out its strategy to tackle fraud by November 2016 and identify resources devoted to tackling different tax risks and the corresponding yield in each area of the tax gap;
  • in annual reports set out compliance yields and changes in the tax gap and also publish this information easily accessible to understand;
  • assess the optimum number and mix of people to prosecute and evaluate and quantify the impact of prosecutions and other counter-measures in deterring evasion; and
  • review the committee's previous findings on value-added tax (VAT) fraud, identify the size of VAT Internet fraud and update the committee on how effective the measures introduced in the government's annual budget have been to address this within the next 12 months.

For more information on the PAC news release, see here.

To access the PAC report, see here.

By Anjana Solanki, Editor

Edited by Rita McWilliams, Managing Editor

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