HMRC should increase number of prosecutions of 'wealthy tax evaders', say MPs

The Government's tax inspectors are not doing enough to tackle tax fraud and should step up the number of prosecutions of wealthy tax evaders, an influential parliamentary committee has found.

The House of Commons Public Accounts Committee said that tax fraud was costing the public purse £16 billion a year in lost revenues.

It gave HM Revenue and Customs (HMRC) a deadline of November this year to set out a strategy to tackle the problem which would counter the public belief that rich people are "getting away with tax evasion".

Committee chairwoman Meg Hillier said that the Panama Papers leak of millions of documents detailing the use of tax havens had underlined the fact that wealthy individuals and companies were seeking to keep their tax affairs hidden from scrutiny.

She highlighted the failure to deliver more than one UK prosecution as a result of the 2008 leak of the so-called Falciani list of details of tens of thousands of accounts at HSBC's Swiss private bank.

She said the committee was looking for "renewed vigour" from the taxman in pursuing fraudsters in the wake of the departure of chief executive Dame (Lin) Homer, who is standing down this month to be replaced by Jon Thompson.

But HMRC insisted that it was "relentless and strategic" in tracking down tax evaders, which was an "absolute priority" for the agency.

The report found that HMRC had made "only limited progress" in reducing the level of loss from tax fraud, which had been "relatively constant" over the past five years. Its strategy for tackling tax fraud was "unclear", particularly with regard to the deterrent effect of prosecutions. The committee described HMRC's reporting of its own performance as "too confusing".

The report called on HMRC "to increase the number of investigations and prosecutions, including wealthy tax evaders, and publicise this work to deter others from evading tax and to send out a message that those who try will not get away with it".

Last November, the committee slammed the number of criminal prosecutions for offshore tax evasion as "woefully inadequate".

The new report said: "HMRC told us that it needs to send the clear signal that anyone who evades tax runs the risk of prosecution.

"The failure to prosecute more than one individual from the Falciani list, HMRC having closed this case and the Financial Conduct Authority no longer taking further action, creates the impression that the rich can get away with tax fraud."

Ms Hillier said the scale of tax fraud - which amounted to about half of the £34 billion tax gap between the amount HMRC believes is due and the amount it actually collects - showed it was "vital" for taxmen to focus their efforts on the issue.

"When people break the law, there must be consequences - and there must be seen to be consequences," she said. "Honest taxpayers rightly expect a tax system that works fairly for all and any perception that this is not the case undermines the public's trust in that system. Its credibility is at risk.

"The release of the Panama Papers underlines that there are wealthy people and companies who seek to keep their affairs secret. Where this secrecy involves criminal activity, prosecution must follow - and the threat of prosecution must serve as an effective deterrent to others."

Responding to the report, an HMRC spokesman said: "HMRC is one of the most effective tax collectors in the world, getting 93 pence of every pound due. Few other countries have a smaller tax gap.

"We remain relentless and strategic in tracking down the few that try to get out of paying their fair share.

"Tackling tax evasion is an absolute priority for HMRC, with 26,000 staff focusing on evasion, avoidance and fraud. We have increased prosecutions of wealthy tax cheats and our crackdown on offshore tax cheats has already brought in more than £2 billion since 2010.

"HMRC is currently investigating 1,100 cases of offshore evasion, including 90 criminal cases of which 29 cases are already in the court system, ensuring that no-one is beyond our reach."

HMRC said that it secured £26.6 billion from compliance activities in 2014/15, up from £18.6 billion in 2011/12, in cases resulting in 1,200 prosecutions and a combined total of 407 years of custodial sentences. Criminal investigations had produced 2,647 convictions and prison sentences totalling 3,125 years since 2010.

At 6.4%, the UK tax gap was at its lowest ever level and was one of the smallest in the world, said the spokesman.