Tax reliefs
28 Mar 2014 02:01 PM
Full report: Tax reliefs
In
a report today describing the ‘landscape’ of tax reliefs in
the UK, the National Audit Office has indicated that it intends to carry out
future work evaluating how tax reliefs are developed, implemented and
administered.
Today’s report also covers how the exchequer
departments assess the performance of reliefs and how they assess, monitor and
respond to the risk that reliefs are abused.
Tax
reliefs are a longstanding element of fiscal policy, and are growing in number,
with more than 1,000 reliefs in the UK tax system. All tax systems include such
reliefs, which in many cases are an essential part of defining the scope and
structure of a tax. They require effective administration as their number, as
well as the interaction between them, means there may be unintended
consequences, creating opportunities for those seeking to avoid and evade
tax.
Some reliefs, known as ‘tax expenditures’,
are often used as an alternative to public expenditure and have similar
effects. They may be designed to achieve particular policy objectives by
incentivizing certain behaviour through the tax system. Tax reliefs and
credits, for example, are available to companies to encourage research and
development activity, a policy objective that has also been pursued through
grant funding. The summed annual cost of tax expenditures is around £100
billion.
According to the NAO, HMRC is responding to the
challenge of administering reliefs and of addressing the abuse of tax rules:
for example, by adding 100 more investigators and extra risk and intelligence
staff to identify and deal with avoidance and evasion by the wealthiest
individuals. The Department also checks taxpayer returns against other data
sources, including whether a taxpayer uses a registered avoidance
scheme.
Monitoring arrangements for reliefs vary across HMRC,
and few evaluations are commissioned. Monitoring and evaluation are important
to understand the extent to which a tax relief is misused. For a tax
expenditure, it is also necessary to understand the behavioural consequences of
the relief and whether it is meeting its social or economic objectives. There
is also limited monitoring of changes in the cost of particular reliefs. Around
a quarter of 92 principal reliefs examined by the NAO had experienced
significant changes in value.
Although today’s report describes the complete
landscape of tax reliefs, the NAO intends to evaluate the administration of
particular reliefs in work to be published later this year.
“Tax reliefs are a powerful, important and
long-standing element in our public finance system. However, their
implementation is subject to less independent scrutiny that that of other
instruments of public policy. The intention of this report is to put Parliament
in a position to consider whether the major elements in the management and
responsiveness of the system of tax reliefs are working adequately or are in
need of further attention.”
Amyas Morse, head of the National Audit Office,
28 March 2014
Notes for Editors
1,128
Number of tax reliefs enacted for individuals and
businesses as at March 2013.
180
Tax
reliefs for which HMRC has estimated a cost.
£101bn
Summed cost of 'tax expenditures' (those reliefs
with similar objectives to spending programmes.
UK tax revenue
£476bn
UK
tax revenue collected by HM Revenue & Customs in 2012-13.
UK tax gap 7%
The
tax gap in 2011-12 was £35 billion, or 7% of tax liabilities in that
year.
1.
Press notices and reports are available from the date of publication on the NAO
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2.The National Audit Office scrutinises public spending
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leads the NAO, which employs some 860 staff. The C&AG certifies the
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