HMRC captured by corporate interests and crippled by public accountability deficit: Labour’s independent review calls for reform

8 September 2016 by Carlos Martin Tornero

An independent review commissioned by the UK Labour party to be released today  (8 September) is expected to recommend tackling a perceived public accountability deficit, the main structural problem of the UK tax collection authority, which is seen as being too close to big corporations, The Accountant has learnt.

The independent review is entitled Reforming HMRC: Making it Fit for the Twenty-First Century and is the result of an investigation of a fourteen-strong team of experts led by Prem Sikka, professor of accounting at the University of Essex.

The independent review, which Labour will use to inform its policy making, was commissioned in October 2015 and submitted in the end of April. It’s based on the external input of over one hundred business advisers and 2,100 HMRC employees surveyed.

One of its main findings is that HMRC suffers a crisis of public accountability, in the sense that the UK tax authority seems to be too tough on smaller taxpayers and too lenient on big corporations when it comes to collecting revenues and following up inspections.

In the UK, the tax gap (the amount of uncollected tax, due among other reasons to avoidance and evasion) ranges from the Government’s £35bn figure to the £120bn figure ($46bn to $160bn), which watchdogs and many commentators suggest.

Among the recommendations is to create a supervisory board made up of stakeholders, including employees, SMEs and taxpayers in an attempt to make the organisation more accountable to the public.

The review is expected to raise concerns about the cuts on staff, at least 40,000 employees in the last 12 years, which has reduced the quality of services for ordinary taxpayers.

In addition, the review might highlight that accountancy firms, often masterminds of avoidance schemes, outnumber HMRC’s transfer pricing specialists by at least five times.

However, the review would emphasise that every one pound invested in anti-avoidance measures by HMRC generates £76 of income.

Another issue expected to be underscored by the review is that although the number of prosecutions has increased, almost a third of those are petty cases which amount to less than £10,000, thus missing out on the big corporations able to avoid or evade higher tax revenues.