The UK spends hundreds of billions of pounds a year on tax reliefs. But a new report suggests that the government doesn’t have a clear idea of whether these tax reliefs are actually achieving their aims – or are just a costly bung to favoured industries.
The report from the National Audit Office highlights that tax reliefs cost £204 billion every year – that’s £204 billion that otherwise would have been collected in tax, if the tax relief didn’t exist.
Tax reliefs are used by the government to try to encourage certain activities or types of investments.
Businesses lobby for special treatment and it’s often unclear whether tax reliefs provide value for money. This is why it’s really important to know whether tax reliefs are working as intended or not.
But there’s a problem. HMRC is given a miniscule budget of just £600,000 a year to run assessments to measure whether these tax reliefs are achieving their objectives.
These assessments are also crucial to gauge whether tax reliefs are open to fraud and error, and potentially being abused to evade tax.
That’s just £600,000 to assess and monitor £204 billion of tax reliefs. It’s a real jaw-dropper.
And the result? HMRC have assessed only a fraction of tax reliefs over the past nine years.
A glimpse into the unknown
One of the tax reliefs they did assess – research and development relief for smaller businesses – was being claimed fraudulently or in error a quarter of the time. That’s over £1 billion a year that was claimed wrongly.
The bottomline: a large number of tax breaks – worth hundreds of billions of pounds a year – are being left open to abuse, with little or no scrutiny by the government.
It’s a shocking revelation, and yet another piece of evidence that HMRC is woefully under-resourced to properly police and scrutinise our tax system. We reported in last week’s newsletter on the same issue.
It shouldn’t be this way
Our public services are desperate for more investment.
If the government had a better idea of which tax reliefs were working, and which tax reliefs could be scrapped, we could free up billions of pounds for investment.
At Tax Justice UK we’ve identified just 5 tax breaks that could be closed, which would raise £7 billion a year. This is money that could be pumped straight into our struggling hospitals, schools and communities.
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