Source · Select Committees · Public Accounts Committee
Twelfth Report: Management of tax reliefs
Public Accounts Committee
HC 379
Published 20 July 2020
Recommendations
2
HMRC and HM Treasury are insufficiently curious about the impact of some key tax reliefs...
Recommendation
HMRC and HM Treasury are insufficiently curious about the impact of some key tax reliefs on different groups. Data on who benefits from tax reliefs are crucial to understanding whether they are achieving their intended objectives and to informing decisions …
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HM Treasury
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Conclusions (29)
3
Conclusion
The exchequer departments are not transparent with Parliament on which tax reliefs need to change taxpayer behaviour for government objectives to be achieved. Tax reliefs that are designed to change behaviour require more attention 6 Management of tax reliefs than those which are intended to simply benefit a specific group …
4
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 …
5
Conclusion
HMRC and HM Treasury do not publish sufficient information on the value for money of tax reliefs to enable Parliament to hold government to account. In response to examinations by this Committee, HMRC now publishes a list of all tax reliefs which support government objectives, and now reports costs for …
6
Conclusion
HMRC and HM Treasury are far too slow in identifying and responding to some of the most serious problems identified with reliefs, including cases of abuse. In June 2014, we found that the exchequer departments did not respond promptly to unexpected increases in the costs of tax reliefs. In March …
1
Conclusion
On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Treasury and HM Revenue & Customs (HMRC).1
7
Conclusion
We were dissatisfied at the fact that none of the ten largest tax reliefs had been properly externally reviewed by HMRC.10 We asked HMRC why it had not evaluated any of these reliefs, such as pension reliefs. HMRC explained that cost was only one factor it took into account in …
8
Conclusion
The need for greater monitoring of the impact of tax reliefs was also raised with us by key stakeholders in the sector. We heard from the Chartered Institute of Taxation, which raised concerns about “the almost total lack of attention, at least so far as is visible to the outside …
9
Conclusion
Evaluations typically cost between £50,000 and £250,000. The NAO estimated that HMRC had spent around £2 million on evaluating tax reliefs since 2015. HMRC has an annual central research budget of £2 million per year to fund evaluations of tax reliefs and other research to inform its wider business and …
10
Conclusion
Tax reliefs on pensions contributions, designed to encourage people to save for their own personal pensions, are among the largest tax reliefs. HMRC forecast that the gross cost of these reliefs totalled £38 billion in 2018–19.18 We were concerned by claims that the tax relief was not being taken up …
11
Conclusion
We asked how the exchequer departments could be sure of the impact that pension tax reliefs were having if they had not evaluated them. HMRC asserted that pension reliefs had been subject to extensive evaluative attention, with “virtually no stone left unturned” as part of work to strengthen the incentive …
12
Conclusion
HMRC collects and reports data on who benefits from some tax reliefs. For example, HMRC reports annually on the number of people gaining from entrepreneurs’ relief 13 Written Evidence MTE0002 – Mr Richard Wild, Chartered Institute of Taxation, published 10 June 2020 14 C&AG’s report, paras 3.4 and 3.5 15 …
13
Conclusion
We asked HMRC what assessment it had made to determine who benefited from another large tax relief, the VAT relief on the construction of new dwellings. HMRC forecast that the relief cost £15 billion in 2018–19. We asked whether the relief would distinguish between the benefit of someone spending large …
14
Conclusion
We also asked who benefited from pension tax reliefs, and the split between different types of pensions. HMRC told us that its aim was to be fully transparent with all the information that it held, and referred to the work that had been undertaken to support the government’s 2015 review …
15
Conclusion
We were concerned that the lack of available information on some large reliefs had meant that it was not possible for HMRC and HM Treasury to know whether all of those who were expected to benefit had been able to do so and whether a relief is working. We heard …
16
Conclusion
We asked the exchequer departments when they would take action on the issue of workers not receiving pension tax relief.27 HM Treasury said the Government recognises the different impacts of the two systems of paying pension tax relief on pension contributions for workers earning below the personal allowance. It referred …
17
Conclusion
When we examined tax reliefs in June 2014, we found that many tax reliefs were introduced without clear objectives. As part of our evidence session in 2014, HM Treasury told us that it was rare to have detailed objectives for reliefs, which we noted was a cause for huge concern.30 …
18
Conclusion
Some tax reliefs incentivise behaviour, while others represent a choice by government to reduce the tax burden on particular groups or sectors. In 2019, HMRC completed an assessment of reliefs with economic and social objectives, resulting in them being grouped into three broad categories reflecting the broad type of outcome …
19
Conclusion
We asked the exchequer departments why new reliefs were being introduced with unclear objectives. HMRC responded that some tax reliefs were expected to apply to a certain group and reflected a political choice about who or what to tax. It gave the example of marriage allowance, which recognises marriage in …
20
Conclusion
When we examined tax reliefs in 2014 we found that HMRC published estimates of only 46 reliefs which had economic and social objectives.35 Since then HMRC has responded to our recommendations that it be more transparent. In October 2019, it published for the first time a list of all 362 …
21
Conclusion
Government’s published estimates of the costs of tax reliefs are prepared by HMRC and scrutinised by the Office for Budget Responsibility (OBR) in its role as the government’s official forecaster. Higher costs can indicate that a tax relief is working well or that it is not being used as intended.39 …
22
Conclusion
HMRC has not compared the costs of tax reliefs to government’s original published forecasts. The NAO examined the costs of ten tax reliefs introduced since 2013. Of these, the costs of four tax reliefs were at least double government’s original forecasts. For example, the research and development scheme for large …
23
Conclusion
We asked the exchequer departments whether reliefs costing double what HMRC had forecast meant that they were out of control. They asserted that they could not anticipate everything when they made their forecasts. They outlined factors that could affect costs including shifts in science and technology, reliefs driving changes in …
24
Conclusion
We asked HMRC and HM Treasury what action they took to follow up on cost forecasts and understand the actual costs of new tax reliefs. HM Treasury told us that there was a variety of reasons why the cost of a tax relief might be different to what was expected …
25
Conclusion
In March 2015, we concluded that there was inadequate assessment of the value for money of tax reliefs.45 In 2017, HM Treasury began to make assessments of the value for money of tax reliefs and by 2019 had assessed the value for money of 63 tax reliefs.46 We asked HM …
26
Conclusion
In our June 2014 report on tax reliefs we concluded that the exchequer departments did not respond promptly to unexpected increases in the costs of reliefs. We found that HMRC took time to react when it noticed a cost increase as it wanted to ensure that its response was appropriate, …
27
Conclusion
In 2015, HMRC published a qualitative evaluation of entrepreneurs’ relief but it only interviewed 17 claimants as part of the evaluation.52 In 2017, HMRC published a larger quantitative evaluation of entrepreneurs’ relief which included interviews with 625 claimants. The 2017 evaluation found that at the point they invested, only 8% …
28
Conclusion
Research and development tax relief for small- and medium-sized enterprise is designed to support companies that work on innovative projects in science and technology.57 The cost of the research and development relief for small- and medium-sized enterprises increased from £0.8 billion in 2014–15 to £2.2 billion in 2017–18. This increase …
29
Conclusion
The cap was due to be introduced in April 2020, which would have given companies until 2022–23 to make claims under existing rules. HMRC estimated that the proposed changes would have saved the Exchequer around £45 million a year. However, at the 2020 Budget the government announced that it would …
30
Conclusion
The main cause of lost tax on the research and development scheme for small- and medium-sized enterprises is from poor quality claims, which has been an issue since the scheme was introduced. We raised the issue with HMRC of the higher than expected number of claims for the relief and …