Leading MPs warned on Wednesday that HMRC is only investigating “the tip of the iceberg” when it comes to tax evasion at the top of the system.
They warn that HMRC is not properly investigating tax evasion via things like fraudulent use of UK company registrations and business insolvencies.
They said it was “too easy to register companies fraudulently”.
The story demonstrates one of the biggest problems we have with the UK tax system, namely: where HMRC is focusing its attention.
Focus on the richest
The MPs said HMRC was not being “sufficiently curious” about pursuing tax evasion at the top of the system.
Meanwhile 83,000 self-employed people on low incomes were fined by HMRC last year for not filing on time. These people were earning too little to pay any tax at all – below the £12,570 personal allowance.
All the while customer service waiting times, for those trying to call HMRC for advice, rose to a new record last year.
HMRC isn’t properly investigating tax evasion among the richest – and they are allowing big gaps to exist in their enforcement system, allowing tax abuse to proliferate at the highest level – while at the same time unfairly penalising many at the bottom of the system.
Close loopholes, simplify the system
Meanwhile, the National Audit Office found that the costs of administering the tax system are spiraling, with complexity at the core of the issue.
HMRC’s costs have risen by around 15% in the period from 2019/20 and 2024, though tax revenue has increased by roughly the same amount.
What can be done? Closing down tax loopholes would be a good start. They are often a way for the super-rich and wealthy corporations to reduce the amount of tax they owe.
Closing tax loopholes would help simplify the tax system, increase government revenue and reduce some of the costs of administration.
And this could raise revenue too. Putting an end to just five of the loopholes we’ve investigated could raise more than £7bn a year.
Removing ways for the wealthiest to reduce their tax bills, alongside properly investigating tax evasion by the super-rich, would also help to rebuild HMRCs reputation as an effective and efficient tax authority.
We can only have a fairer and more just tax system when our government and tax authority gets their priorities right.