The tax relief system, which costs tax payers £100 billion, is poorly managed and ripe for exploitation, according to a report by the Public Accounts Committee.
The report, which was released yesterday, argued that while some tax reliefs are well intentioned, they create opportunities for avoidance and evasion.
HMRC had developed a framework for providing a “strong case” for new reliefs in 2010, yet this has since been ignored and the tax man can not cope with the growing demands imposed by the increasing number and complexity of reliefs, PAC said.
The report also pointed to a lack of transparency and accountability with no adequate control system in place. At the end of 2013, there were 1,128 tax reliefs in the UK and the number continues to grow.
Margaret Hodge, chair of the PAC, said:
“Much more radical simplification of the tax system is required if we are to get to grips with aggressive tax avoidance. If government chooses to spend £100bn on tax reliefs, at a time of austerity, this expenditure should be considered in the same way as spending programmes. Many tax reliefs are introduced without clear objectives and are not evaluated as fully.”
The report urges the government to ensure there are more appropriate disincentives and sanctions in place to stop advisers from promoting aggressive tax avoidance schemes.
“Departments need to demonstrate the case for introducing new reliefs, as opposed to other options such as direct grants. It must monitor them systematically to ensure they are achieving government’s stated objectives, rather than after risks emerge,” Mrs Hodge said.
A spokesperson from the Treasury said 80% of the money identified for tax relief is for ensuring people don’t pay income tax on pensions, the food they buy for their families and the clothes for their children. They said it was “extraordinary” that the PAC appears to be criticising tax reliefs that are “helping millions of hard working families.”
Photo by James Cridland