Prosecute financial advisers who assist in tax avoidance, say MPs

Public accounts committee advocates legislation making promotion of aggressive tax avoidance illegal and review of government tax relief schemes

The next government should introduce new laws to prosecute financial advisers who help wealthy individuals and firms in aggressive tax avoidance, a comprehensive parliamentary report has found. The public accounts committee, which scrutinises public spending, has examined the use of tax relief and the role of advisers from the Big Four accountancy firms, as well advice given to investors by the Swiss arm of the bank HSBC.

The cross-party group of MPs has called for legislation that will allow the prosecution of advisers who push their clients towards aggressive tax avoidance schemes. They have also recommended a review of all tax reliefs by the government to simplify the system. It follows an announcement in last week’s budget by the chancellor George Osborne that will allow for the prosecution of advisers who assist tax evasion.

The committee suggested that the government’s recommendations do not go far enough, and called for further measures to clamp down on accountants and lawyers who steer their clients towards schemes designed to circumvent current tax rules.

Margaret Hodge, the chair of the committee, said that the big four firms – PwC, Ernst & Young, Deloitte, and KPMG – and promoters of marketed avoidance schemes are part of a tax avoidance industry making lucrative business out of designing and selling ways for their clients to avoid tax. “Some of these firms, for example PwC, from whom we took evidence, appear to be selling these schemes on an industrial scale,” she said. “We remain concerned that HMRC’s relationship with these large accountancy firms is too cosy, and it needs to get much tougher in challenging the advice they give to their clients.

“We have also argued for new offences to penalise those involved in advising or helping companies and individuals avoid or evade tax,” she said.

The singer-songwriters Gary Barlow and Katie Melua are among the celebrities who have faced criticism after investing in aggressive tax avoidance schemes. Both claimed that they had received advice that they later regretted. The Take That singer, along with fellow group members Howard Donald, Mark Owen and their manager Jonathan Wild, reportedly invested £66m into two partnerships styled as music industry investment schemes. In September, he apologised on Twitter and said he had employed “a new team of accountants” to settle his affairs.

Melua was criticised last year when it emerged that she had reportedly invested £850,000 in the Liberty tax scheme. She later apologised, saying she was “clueless” and had put herself in the hands of advisers who presented the scheme in 2008 as “legal and legit”.

The committee also concluded that HMRC should increase the number of prosecutions by working closely with the Crown Prosecution Service and other authorities. Tax officials should gather evidence to establish the effectiveness of prosecutions in deterring tax evasion by wealthy individuals, the report said.

Following the Guardian’s disclosures on HSBC’s tax arm, the report expressed concern at the action taken by tax officials against the bank. “Only one case has been prosecuted since HMRC received the data in 2010, and we are not aware of whether any action has been taken against the bank,” Hodge said.

The report follows a series of high-profile PAC meetings in which Hodge has questioned executives from HMRC, Google and Goldman Sachs over Britain’s creaking tax system. The committee has been credited with pushing the issue of tax to the top of the political agenda.

Announcing the budget, Osborne also promised that HMRC would issue more “accelerated payment notices”, which allow the taxman to demand upfront payment of disputed tax sums. In addition, the chancellor said the government would clamp down on complex accounting manoeuvres to recycle tax advantages from tax losses, which he hopes will save £715m in five years.

Last year Charlie Elphicke, the Conservative MP for Dover and a former tax lawyer, tabled a series of amendments to the finance bill that would make it illegal to help clients to invest in schemes designed to avoid tax.

A spokesman for Revenue and Customs said: “The committee recognises the progress made in clamping down on tax evasion and avoidance, by relentlessly pursuing those who seek to cheat the system. We have shut down marketed avoidance schemes, closed loopholes, secured tough new enforcement powers, and opened up international information exchanges so rich evaders will have no safe havens where they can hide their money.

“As a result of our compliance efforts and the £1bn extra investment over this parliament, we have secured more than £100bn in additional revenues in the past five years to pay for essential public services, raised penalties for tax evasion to %200 of tax owed, and increased prosecutions fivefold,” he said.