An effective tax system means that everyone (individuals and organisations alike) pays the amount they are asked to pay.
WHERE WE ARE NOW
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HMRC estimates that £1.7 billion was lost from tax avoidance and £5.2 billion from tax evasion in 2015/16 (but it believes that the total amount of tax that was uncollected that year - the ‘tax gap’ – was £34 billion). Other estimates of the tax gap, such as research carried out by Richard Murphy in 2014, suggest that the real figure is more like £119 billion, while HMRC themselves have admitted that last year large companies underpaid £5.8 billion in corporation tax, according to the ICAEW, and research by the economist Gabriel Zucman suggests that corporate tax avoidance via tax havens costs the UK about £11 billion per year.
Increasing HMRC’s budget to crack down on tax avoidance by large companies would yield £97 for every £1 extra spent, according to its own figures. Tax avoidance can only be fixed in the long term by reforming the global financial system (at the centre of which are many of the UK’s institutions). Many organisations based in the UK are undermining the current system, exploiting loopholes to reduce their (or their clients’) tax bills, with negative consequences for tax revenues and public services in the UK and across the world. These include the big accountancy firms as well as many global banks, law firms and other financial services providers. |
The UK government could be doing more on transparency, to address the loopholes that facilitate tax avoidance both in the UK and overseas. At the 2013 G8 summit, the UK government brought three key tax transparency proposals onto the global agenda: public registers of beneficial ownership; multilateral and automatic exchange of financial information; and public, country-by-country reporting by multinational companies. Four years later, the UK government has introduced a beneficial ownership register for companies, and limited automatic information exchange. However, many of the proposals have been watered down in as far as they help developing countries. Many of the necessary reforms need action by the G20 and the OECD, and here the UK promotes progress in some areas while blocking it in others.
The UK’s network of crown dependencies and overseas territories includes some of the world’s leading secrecy jurisdictions (popularly known as ‘tax havens’), including the Cayman Islands, the British Virgin Islands, Bermuda and the Channel Islands. The UK government has the right to compel these jurisdictions to reform their financial systems to improve transparency, and thereby make it harder for organisations and individuals alike to both avoid and evade tax (and to tighten the net on money laundering and other financial crimes). However, the government failed to make use of the opportunity provided by the London anti-corruption summit in 2016 to do this. This failure needs to be addressed urgently to reduce tax avoidance and evasion across the world. |
WHAT NEEDS TO BE DONE
Ensure that all companies and individuals pay the full amount of tax that they owe, through concerted domestic enforcement and by taking a strong line on tax avoidance and transparency at the domestic and global levels.
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ENFORCEMENT
Make HM Revenue and Customs more effective at reducing tax avoidance by large companies and wealthy individuals, by restoring its budget and staffing to the levels it had when it was formed in 2005, scrapping plans to close hundreds of local offices, and tightening its mandate to clamp down on tax avoidance by large taxpayers. |
TRANSPARENCY
Improve transparency unilaterally, by introducing public registers of beneficial ownership for trusts as well as companies, mandating public country-by-country reporting for UK publicly quoted companies, and requiring the UK’s crown dependencies and overseas territories to introduce the same measures as in the UK. |
ACT NOW
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