Confidence in HMRC’s tax system at risk, PAC warns

A report by the Public Accounts Committee (PAC) has warned that HM Revenue and Customs (HMRC) must take more care in cracking down on the super-rich in order to prevent undermining confidence in the whole system.

The PAC called upon HMRC to make clear that the case of tax was not ‘one rule for the rich and another for everyone else’.

In its report, the committee outlined that ‘the amount of tax paid by the very wealthiest group of individuals had actually fallen by £1 billion since the unit was set up’. It recommended the tax collector to to consider what further powers could help it improve its understanding of the very wealthy, and formally evaluate the effectiveness of the high net worth unit.

PAC chairwoman Meg Hillier said: “HMRC's claims about the success of its strategy to deal with the very wealthy just don't stack up. The tax take for this group of people has fallen by £1 billion since HMRC set up its dedicated unit. At the same time, income tax paid by everyone else has risen by £23 billion.

“Cosy terms such as 'customer relationship manager' and HMRC's reluctance to be open add to the picture of arrangements that, while beyond the reach of ordinary taxpayers, are also ill-suited to the increasingly sophisticated methods the super-rich can use to reduce the tax they pay.

“If the public are to have faith in the tax system then it must be seen to have fairness at its heart. It also needs to work properly. In our view HMRC is failing on both counts. HMRC must play a stronger role in identifying tax measures which are not being used as Parliament intended and push harder for reform where the rules are open to abuse.

“It must be willing to engage in an honest and open assessment of its compliance activity and adapt its approach swiftly, making the case for new powers where it needs them. We were encouraged by the evidence HMRC's senior management gave to the Committee on image rights and we look forward to news of meaningful action in this area.

But this is just one part of an increasingly complex system and we will expect HMRC to respond positively to the full recommendations set out in our report."