Multinational Companies and UK Corporation Tax
Debate between Baroness Hodge of Barking and David Gauke(11 years, 4 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
We have had a short but useful debate. I congratulate my hon. Friend the Member for Warwick and Leamington (Chris White) on securing it and thank the Backbench Business Committee for granting it.
Rightly, this issue has received much greater scrutiny in recent months. The public anger is understandable and not surprising, given that difficult decisions are being made on the public finances and the vast majority of people pay the taxes they owe, and the perception is that some companies are not contributing their fair share or complying with the law.
We should say at the outset, and the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) was right to say, that there can be occasions where it is entirely legitimate for a company not to be paying corporation tax if it is making use of reliefs or capital allowances in the way that Parliament intended. It is also the case—there can be confusion about this—that corporation tax is a tax on profits, not a tax on sales. It is also worth remembering that we do collect significant sums of corporation tax from large businesses. But where the public’s concerns are justified, where there is avoidance, by which I mean contrived and artificial behaviour contrary to Parliament’s intention, that is a very serious matter and it is right that we take action.
There is an issue of administration. The point has been raised about HMRC’s effectiveness in dealing with tax avoidance by large businesses. I should explain that HMRC works, with regard to large businesses, by putting in place CRMs—customer relationship managers. Their role is essentially to man-mark the most complex and high-risk taxpayers. In recent years that approach has proved to be effective in getting money in. HMRC secured £8 billion of additional compliance yield from large businesses in 2012-13, and more than £23 billion in the past three years. It is an approach that has been endorsed by the OECD. One of the difficulties that HMRC has is that it is bound by taxpayer confidentiality. It cannot give a running commentary to this House on the action that it takes, but the numbers demonstrate that HMRC is effective in getting money in.
Mr Gauke
Neither the right hon. Lady nor I know what action HMRC has taken with regard to individual companies. What we do know is that it has got billions of pounds in additional yield as a consequence of the action that it takes with large businesses as a whole. With reference to HMRC’s performance across the board, additional yield is being achieved year after year, and this Government have provided resources to increase the yield on evasion and avoidance.
One other constraint on HMRC is that it can collect only the tax that is due under the law, and there is an issue here because very often the law that applies to large businesses encompasses international law, OECD arrangements and what is set out in double taxation agreements. The point was raised about the definition of “permanent establishment”. That is set out not just in domestic legislation, but in international law. We have led the way in encouraging the OECD to look at what needs to be done to improve the international situation, to make sure that the base erosion and profit-shifting work can ensure that the tax rules are all up to date for the internet world.
We have had a very short debate, and in this very short speech and the time available to me I cannot do justice to all the points that were raised. Let me say in conclusion that HMRC has robust methods in place to ensure that tax compliance by the biggest businesses occurs, and the numbers support that. We have used our international position to make sure that there is progress in bringing international tax law up to date to reflect the current position. We have a Government who are committed to ensuring that large corporates pay the tax that is due.
Tax Avoidance and Evasion
Debate between Baroness Hodge of Barking and David Gauke(12 years, 2 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
It is a great pleasure to respond to this debate, and I begin by congratulating the right hon. Member for Oldham West and Royton (Mr Meacher) on securing it. This has been a broad and wide-ranging debate, and over the past couple of hours we have discussed the taxation of large businesses and wealthy individuals, taxpayer confidentiality, HMRC staff numbers, a general anti-avoidance rule, and the right hon. Gentleman’s private Member’s Bill, which I am sure the House looks forward to debating tomorrow.
Tax simplification was raised by my hon. Friends the Members for Amber Valley (Nigel Mills) and for Wycombe (Steve Baker), and my hon. Friend the Member for Portsmouth North (Penny Mordaunt) discussed standards of service in HMRC. My hon. Friend the Member for Bristol West (Stephen Williams) raised the topical matter of cash in hand, and perhaps went even further than I did earlier this year in his remarks about negotiating a discount for cash. I suspect all those matters could have filled a two-hour debate in themselves, but let me attempt to address as many of them—and others raised in the debate—as I can.
My first point is that the Government have a strong track record in addressing the full range of avoidance and evasion that results in the tax gap—the difference between the tax that is collected and the tax that is due. We remain further committed to tackling the gap and to reducing that sum over the course of this Parliament. Our intention is that the compliance yield of £13 billion a year, which we inherited, will increase to £20 billion a year in this Parliament.
It is helpful to distinguish between tax evasion and tax avoidance. A number of hon. Members have done so in the debate, but let me underline the point. Put simply, tax avoidance is the reduction of tax liabilities by using tax law to get an advantage that Parliament never intended. As we have heard—not least from my hon. Friend the Member for Bristol West, who brings expertise to these matters—tax evasion is illegally understating tax liabilities. Evasion is fraud and means breaking the law. There is striking unanimity in the House on the need to address both avoidance and evasion, and that the Government should take them seriously. I shall discuss the different responses we have in place for each, and the new directions on tax avoidance that we are considering through consultation.
I should first like to set out a few facts on compliance generally. Last year, HMRC collected £474 billion in tax. The tax gap for the last year for which authoritative numbers were produced—2009-10—was £35 billion. Of that figure, tax avoidance constitutes around 14%, which is down from 17.5% in 2007-08. The tax gap arising from tax evasion is also falling—from 17.5% in 2007-08 to 12% in 2009-10.
I would make two observations on that, the first of which was made by a number of right hon. and hon. Members, namely that the vast majority of UK taxpayers do not avoid or evade tax. The vast majority of taxpayers and our constituents expect us to ensure that as many people as possible pay the right amount in tax. Secondly, although by international standards our tax gap is low, the Government are determined to do everything we can to improve those numbers. That is why we are re-investing more than £900 million to transform the approach to compliance, to close the tax gap, and to enable HMRC to address the serious matters it faces.
The investment is funding a range of measures to widen HMRC’s overall compliance coverage and target the highest risks. It also includes funding for a highly skilled work force. We are increasing the number of staff working on compliance by around 2,500 full-time equivalent positions by 2014-15. Reference has been made to the Public Accounts Committee report that highlights concerns that cuts in the number of compliance staff resulted in revenue in the order of £1.1 billion not being collected in the previous Parliament. Hon. Members are correct that the number of HMRC staff will fall in this Parliament, but the number of those focusing on compliance activities will increase. There will, for example, be more criminal investigators and people working in intelligence to tackle tax evasion and avoidance.
Margaret Hodge
I accept that it is the intention of the Exchequer Secretary to increase compliance activity, but I would like him to address two issues that I raised: first, the fact that HMRC has raised the threshold for taking action on fraud, as a result of which less money will be collected; and secondly that, although he said we needed more highly trained individuals, such training is not taking place, because of the Department’s inability to establish training provision and ensure that people benefit from it and get on with it.
Mr Gauke
I do not accept the right hon. Lady’s point about the increase in the fraud threshold. When I look at some of the work that HMRC is doing—for example, to address inheritance tax fraud—I see a substantial increase in activity. It is addressing far more cases than ever.
I know that the PAC takes a strong interest in training. It is important that staff are trained. People are being moved from other parts of HMRC—for example, from personal tax—into enforcement and compliance. It is important that they are properly trained, however, and that process is going on—progress is being made and the compliance yield is already increasing. Over the months and years ahead, we will increasingly see the benefits of a large and better-trained compliance team. It is absolutely right that the PAC scrutinises this specific point, but HMRC is making progress, and we all want to encourage it to make further and faster progress to ensure that we get the right staff in the right places.
Compliance revenue has more than doubled in six years, and HMRC is on track to bring in about £7 billion in additional tax each year by 2014-15. In addition, on avoidance, HMRC has closed down seven schemes in the past year alone and, since 2010, litigated about 30 direct avoidance cases, with a high success rate. On evasion, HMRC has secured 413 criminal convictions, resulting in more than £1 billion in additional revenue and revenue-loss prevention. Those are significant achievements,
Anyone reading the papers recently might well think that avoidance is rampant. I want to reassure right hon. and hon. Members that that is not the case, and the vast majority pay their taxes without trying to get around the system. Nevertheless, where we and HMRC see people trying to exploit the system, we will take swift action. Currently, there are a minority of cowboy tax advisers—small niche firms selling crude avoidance schemes unlikely to be successful under challenge from HMRC. Many of those who sell those schemes use tactics that border on mis-selling, and their clients can end up shocked when they are later pursued by HMRC over their involvement. The Government recognise the need to do more to target those who market such schemes to protect taxpayers and prevent them from entering into them.