HMRC FAILURE TO GET TOUGH WITH RICH UNDERMINES WHOLE TAX SYSTEM, MPS WARN

HM Revenue and Customs’ failure to get tough with Britain’s richest individuals is undermining confidence in the whole tax system, MPs have warned.

In a scathing report, the Commons Public Accounts Committee accused HMRC of creating the impression in its dealings with taxpayers there was “one rule for the rich and another for everyone else”.

Since HMRC set up a specialist unit for dealing with “high net worth individuals” in 2009, the amount of income tax they paid had fallen by £1 billion – even though income tax receipts from the public as a whole rose by £23 billion over the same period.

The committee also highlighted concerns about “potential abuse” of image rights by top footballers and people in the entertainment to minimise their tax liabilities.

It disclosed that HMRC currently has “open inquiries” relating to the use of image rights by 43 footballers, 12 clubs and eight agents.

The MPs said they were “appalled” to learn that not all clubs were providing HMRC with the data it required under the terms of a voluntary agreement with the English Premier League.

Overall, the committee found HMRC had not been tough enough when it came to dealing with tax evasion and avoidance by the very rich, and had little idea what impact the deterrent measures it took were having.

Since 2009, each of the estimated 6,500 individuals worth £20 million or more has been assigned a “customer relationship manager” by HMRC to administer their tax affairs.

But while HMRC said it had resulted in the collection of an additional £2 billion in tax revenues, it was unable to explain why the income tax they paid fell by 20% – from £4.5 billion in 2009-10 to £3.5 billion in 2014-15 – when the overall income tax take rose by £23 billion, a 9% increase.

The committee said it was “alarming” that any one time around a third of the individuals concerned were likely to be under inquiry for unpaid tax by HMRC – with cases with a potential value of £1.9 billion currently under investigation.

However, the report found HMRC had a “dismal record” when it came to prosecuting the very wealthy for tax fraud in the criminal courts.

In the five years to March 31 2016, it completed just 72 fraud investigations into such individuals, with all but two having been dealt with using its civil powers. Only one case resulted in a successful criminal prosecution.

Of the 850 penalties issued to the very wealthy since 2012, the average charge was £10,500 – a figure the committee said was likely to be too small to act as a deterrent to multimillionaires.

It expressed concern the problem was likely to become more acute as such individuals increasingly moved from off-the-peg tax avoidance schemes – the “high street equivalent of Primark or Next” – to bespoke “made-to-measure Savile Row” arrangements.

The committee chairman Meg Hillier said: “If the public are to have faith in the tax system then it must be seen to have fairness at its heart. It also needs to work properly. In our view HMRC is failing on both counts.”