Source · Select Committees · Public Accounts Committee
Recommendation 5
5
Not Addressed
There is a significant risk that the Digital Services Tax may require extension beyond its...
Recommendation
There is a significant risk that the Digital Services Tax may require extension beyond its intended lifespan, and that this could prompt changes in taxpayer behaviour. Should the OECD reforms be delayed beyond 2024, the Government is required by law to review the operation of the Digital Services Tax in 2025. We assume that the tax would continue in some form if possible but there is a question about its long-term sustainability. While there may be no evidence of active tax avoidance or evasion by businesses to date, this may change if the life of the Digital Services Tax is extended. Businesses such as those within the scope of the tax traditionally employ significant resources to ensure that their exposure to tax is minimised, and they may consider that the Digital Services Tax is more worthy of such attention if it is extended. Methods for ensuring compliance are untested and could require cooperation between countries. The Digital Services Tax 7 Recommendation 5: Ahead of the formal requirement to review the tax in 2025, HMRC should develop a contingency plan for what happens if the Digital Services Tax needs to be extended, including a robust process for addressing non- cooperation with its compliance regime. 8 The Digital Services Tax 1 Design and implementation of the Digital Services Tax
Government Response Summary
The government response focuses on Department for Business and Trade efforts to recoup local authority grant payments made in error in the first wave of Covid support schemes, but it does not address the need for HMRC to develop a contingency plan for the potential extension of the Digital Services Tax and a robust process for addressing non-cooperation with its compliance regime.
Government Response
Not Addressed
HM Government
Not Addressed
1. PAC conclusion: The Department does not expect to recoup the majority of the estimated £985m of local authority grant payments made, mainly in error, in the first wave of Covid support schemes. 1. PAC recommendation: The Department, alongside its Treasury Minute response, should write to the Committee to quantify its latest estimates of fraud and error in each of the COVID-19 grant schemes and explain its justification where it is not seeking to pursue recoveries from businesses. 1.1 The Government agrees with the Committee’s recommendation. Target implementation date: Summer/early Autumn 2023 1.2 The Department for Business and Trade (DBT), previously the Department for Business, Energy and Industrial Strategy, can conclude recovery is unrealistic for the following reasons: • the business has ceased trading, with no residual assets and is not in administration; • recovery is poor VFM (the cost of litigation actions is higher than the debt) or • recovery is accepted as a significant reputational risk for DBT. 1.3 The government set out the latest position to the Committee at a hearing in relation to the Local Authority COVID-19 schemes which took place on 11 May 2023, following the recent report by the National Audit Office. The DBT has asked one of the Non-Executive Directors to undertake a review of the ongoing assurance, reconciliation, and recovery activity in relation to irregular payments and will write to the Committee following the conclusion of this review. 1.4 The review is aimed to conclude in Summer/early Autumn 2023. 2. PAC conclusion: The Department’s lack of curiosity surrounding lenders’ performance in the Bounce Back Loan Scheme increases the risk of losses for the taxpayer. 2. PAC recommendation: • The Department should set out what more it will do to identify the reasons for variances in scheme performance and encourage all lenders to reach an optimal level of performance. This is likely to include establishing the full extent of information held by lenders. • The Department should make data collection and sharing explicit within initial agreements when setting up future lending schemes. 2.1 The government agrees with the Committee’s recommendation. Target implementation date: July 2023 2.2 The Department for Business and Trade does not recognise the Committee’s description of its predecessor department, the Department for Business, Energy & Industrial Strategy’s, lack of curiosity regarding lender performance. 2.3 Driving positive outcomes in lender behaviour is an important tool to mitigate the risk of avoidable losses to the public purse. The Department for Business and Trade, British Business Bank (BBB) and other government stakeholders work closely with UK Finance and individual lenders to achieve this. 2.4 A Lender Performance Advisory Board provides government’s oversight and strategic advice, considers action to minimise losses and enables cross-government coordination and escalation routes. The Board is chaired by the responsible DBT Director General and brings together BBB’s Chief Executive with senior leaders from HM Treasury, Cabinet Office’s Public Sector Fraud Authority and UK Government Investments. 2.5 Current workstreams across these organisations include: • Improving data collection (and embedding those principles into future schemes from the outset), robustness, and transparency to help understand lender performance and prioritise interventions. Work is continuing to develop the lender portal, standardise data definitions, improve the analysis dashboard and review the range of data published. • Improving policies and procedures to ensure lenders are operating in accordance with scheme requirements and striving to minimise avoidable loss. This includes enhanced guidance for debt write-off; pilots testing the case for additional action when wrongdoing is suspected; and a Counter Fraud Strategy. • Targeted action to address individual lender poor performance and maximise recovery of associated losses. This includes audits on lender processes and performance from initial loan approval through to recoveries; claims and write-offs; negotiations to recover losses where poor performance is identified; and undertaking additional assurance activities. 2.6 DBT will provide