It has long been the case that those who use tax avoidance schemes have borne the brunt of the authorities, but now those who provide the advice that leads to the implementation of such schemes could be investigated too.
In the wake of the Panama and Paradise Papers investigations, a series of inquiries will take place in an attempt to clean up the tax havens that help the wealthy dodge the tax that’s owed to society.
A subcommittee of the Treasury select committee will hold hearings on tax abuse over the next six months, with the practices of major accountancy firms called into question and tax advisers being dragged in front of MPs. There will also be investigations into whether HMRC offers ‘sweetheart deals’ to multinational organisations.
A Matter of National Shame
Official HMRC figures show that from 2015-2016, an estimated 6 percent of the tax due in the UK went uncollected, resulting in a huge £34bn hole in tax revenues. Around £1.7bn of that resulted from legal steps being taken to minimise tax liabilities, but £5.2bn was lost to those evading tax illegally.
With public finances already strained, it’s clear to see that this is a situation that cannot continue, particularly when many of those who avoid paying the tax they owe are high-net-worth individuals using numerous complex loopholes to minimise their tax bill.
Pressing the Enablers and Facilitators
Now is the time to take a closer look at the accountancy firms that are facilitating tax avoidance schemes. John Mann, the chair of the Treasury subcommittee that will be leading the investigation, said: “We’ll be pressing the enablers and facilitators in the tax profession and others, summoning them before parliament to hear how their schemes work and how they justify it.”
One example of the type of schemes the super-rich use is the creation of offshore companies by private jet owners who make substantial VAT savings by effectively renting the aircraft from themselves.
Sheltering the Wealth of the Financial Elite
The subcommittee will also investigate the role played by the UK’s network of crown dependencies and overseas territories such as the British Virgin Islands, Guernsey, Jersey, the Isle of Man, Bermuda and the Cayman Islands.
Despite pressure from campaigners and MPs, many of these territories have refused to put new standards of transparency for offshore company owners in place. If they do not cooperate further, territories that fly the British flag but give shelter to the wealth of the world’s elite could be placed on the EU’s blacklist of uncooperative tax jurisdictions.
Explaining the Holes in the tax System
Of course, as long as holes exist in the tax system, there will always be advisers and individuals out there who are willing to exploit them. Part of the inquiry will also involve the government, with ministers asked to explain why so many holes exist in the tax system and what they intend to do to plug them.
They will also be asked to explain how the relationship the UK has with its overseas territories works and what can be done to clamp down on what John Mann calls “a stain on the UK.”