HMRC vs. the Public Accounts Committee – Round 1

HMRC needs to think about new, tougher measures for businesses, which fail to pay tax in the UK. They are called upon to do it by MPs from the Public Accounts Committee. The current line raised some concerns, due to the recent tax avoidance schemes applied by major multinational companies, such as Amazon and Google, which have paid small tax to the UK, regardless of the huge turn over they have made.

As we have already announced, tax avoidance schemes seem to be very common among multinational companies. A great example is Starbucks for example. According to the researches they have made over #400m in the UK, however as they pay royalties to a sister branch in the Netherlands, for using the brand, they paid no corporation fee in the UK, despite the huge turnover.

After revealing the schemes, a number of other big companies have come under heavy fines. HMRC was criticised for failing to manage the case and ensure the companies pay what they are required to pay in the UK.

“These global companies are making money in the UK,” said Margaret Hodge, chairwoman of the Public Accounts Committee. “All we are saying is that if you have economic activities in the UK you are making profits and tax is payable on that.”

She says that the HMRC should be more “aggressive and assertive”, when it comes to fighting tax avoidance schemes, which might hurt the UK economics.

On the other hand, the HMRC replied back that all multinational companies with UK branches, pay the tax with accordance to the current laws.

Despite this, however, Chancellor George Osborne is set to announce details of a £154m fund intended to assist in dealing with tax issues relating to the affairs of large corporations and wealthier people.

UK Loses Billions because of Tax Avoidance Schemes

A recent report shows that the UK loses billions just because HM Revenue and Customs (HMRC) are unable to control the tax avoidance schemes spread across the whole country.

By the words of The National Audit Office, HMRC was dealing with about 41,000 cases with up to £10.2bn at stake. The professionals from HMRC claim that during the last two years they had successfully contested 40 schemes.

No matter one of the main priorities of the coalition government in order to reduce the deficit in the budget is to stand against the tax avoidance, according to the NAO more than a hundred new schemes became evident each year having in mind the time between 2004 and 2011.

It is determined that 30,000 small companies or individuals use the so-called employment intermediary schemes and partnership loss schemes. This way they inflate the loss artificially using “circular loans”, which gives them the opportunity to conceal other income from tax.

Despite the fact that HMRC strives for success in this area, such cases often consume lots of time and appear to be too hard to be resolved.

Litigation has opened 110 investigations since April 2010. HMRC managed successfully with most of them but according to the NAO, this does not prove that the litigation will turn out to be an effective way to stop the schemes.

“It is inherently difficult to stop tax avoidance as it is not illegal. But HMRC needs to demonstrate how it is going to reduce the 41,000 avoidance cases it currently has open.”

The NAO also mentioned these schemes are usually used by specialist tax advisors whose aim is to prevent their clients from paying taxes.

By virtue of the law since 2004, authorities should be notified but the watchdog is skeptical about the positive results of this regulation over the scale of tax.

“This changed the shape of the market, but has not prevented some promoters from continuing to sell highly contrived schemes to large numbers of taxpayers, depriving public finances of billions of pounds.”

The chairperson of the Commons Public Accounts Committee observing the work of the NAO, Margaret Hodge, shared her opinion that HMRC have to try harder in order to clamp down on promoters of tax avoidance schemes so that some evident results appear.

“People who pay their taxes promptly and in full will be dismayed to discover that the enormous level of tax avoidance taking place is overwhelming HMRC’s efforts to combat it,” she said.

As an answer to her statements HMRC claims that their successful investigations brought to court protected about £4bn.

The spokesperson later added that the Government would help HMRC giving it more powers to obtain information and creating an anti-abuse rule in 2013.

If you are worried about your company`s tax, do not hesitate to get a legal advice online.