Source · Select Committees · Public Accounts Committee
Recommendation 4
4
HMRC cannot explain why the cost of some tax reliefs is considerably greater than government...
Conclusion
HMRC cannot explain why the cost of some tax reliefs is considerably greater than government forecasts presented to Parliament. Government forecasts of the cost of tax reliefs are prepared by HMRC and scrutinised by the Office for Budget Responsibility (OBR). The costs of some new tax reliefs are double the government’s published forecasts. For example, the research and development scheme introduced in 2013 for large companies now costs over £2 billion a year, twice what HMRC expected when it was introduced. In July 2019 the OBR concluded that the cost of tax reliefs was poorly understood. HMRC does not compare the costs of reliefs to forecasts and is therefore not well-placed to investigate the reasons for cost variances or report differences to Parliament. HMRC has committed to publicly reporting variances between the forecast and actual cost of tax reliefs. Recommendation: HMRC should, as part of its next annual statistical publication on tax reliefs due in October 2020, identify all significant cost variances within tax reliefs, and report the reasons for those variances, explaining whether variations in cost are proportionate to the impact of the relief.
Government Response
Not Addressed
HM Government
Not Addressed
4: PAC conclusion: HMRC cannot explain why the cost of some tax reliefs is considerably greater than government forecasts presented to Parliament. 4: PAC recommendation: HMRC should, as part of its next annual statistical publication on tax reliefs due in October 2020, identify all significant cost variances within tax reliefs, and report the reasons for those variances, explaining whether variations in cost are proportionate to the impact of the relief. 4.1 The Government agrees with the Committee’s recommendation. Target implementation date: Autumn 2020 4.2 HMRC’s annual official statistics on tax reliefs include graphs of the absolute costs of the most significant reliefs and their cost as a proportion of GDP, which allows for monitoring the cost trends over time and whether cost changes are proportionate to the size of the relief. In the 2020 statistics HMRC will expand commentary on the variance over time of the costs of these high priority non-structural tax reliefs. 4.3 HMRC also plans to publish more information on initial forecast estimates in the tax relief statistics, starting in October 2020. In the first instance, this will focus on high priority non-structural tax reliefs which have been announced since the introduction of the Office for Budget Responsibility (OBR). The NAO noted in their recent report on tax reliefs, that it is more difficult to compare the costs of established tax reliefs with published government forecasts because projections cover a maximum of five years. There may be cases where it is not feasible to make credible comparisons, due to differences in time periods covered by the original forecasts and difficulties factoring in other complexities such as economic changes and wider policy changes. In cases where it is not feasible to develop an approach to compare costs with forecasts for high priority non-structural tax reliefs, HMRC will explain why.