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According to a National Audit Office report published today, the Treasury is losing billions of pounds due to the failure of HM Revenue & Customs (HMRC) to clamp down effectively on aggressive tax avoidance schemes involving tens of thousands of people.
The Whitehall spending watchdog said that, despite ramping up efforts to address the problem in recent years, tax officials lack a clear strategy on how to tackle it.
The Audit Office has disclosed that HMRC is currently dealing with a backlog of 41,000 cases still open, relating to schemes aimed at small businesses and individuals, with £10.2 billion of tax revenue at stake.
While acknowledging that tackling tax avoidance is difficult as it is not illegal, the report says that HMRC must do better than the 40 schemes it has challenged in the past two years, as between 2004 and 2011, around 2,300 avoidance schemes have been disclosed to them, with more than 100 new schemes emerging in each of the past four years.
The scale of the potential avoidance was described as “eye-watering” by senior MPs, who learned that there are probably around 30,000 users currently of what are known as employment intermediary schemes and partnership loss schemes, which is where partnerships that make a loss can shelter their other income from tax.
The Government has made cracking down on tax avoidance one of its key priorities, as the money raised could help the deficit and HMRC has opened litigation in 110 avoidance cases since April 2010, with success in the majority of them.
However, the National Audit Office report says that there is no evidence that this level of litigation is proving an effective deterrent to the promoters and users of the most aggressive tax avoidance schemes.
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