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«Cm 9013 February 2015 Treasury Minutes Government responses on the Eighteenth, the Twenty First to the Twenty Fourth, and the Thirty Third reports ...»

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Treasury Minutes

Government responses on the Eighteenth, the

Twenty First to the Twenty Fourth, and the

Thirty Third reports from the Committee of

Public Accounts: Session 2014-15

Cm 9013 February 2015

Treasury Minutes

Government responses on the Eighteenth, the

Twenty First to the Twenty Fourth, and the

Thirty Third reports from the Committee of

Public Accounts: Session 2014-15

18th Report: HMRC progress in improving tax compliance and

preventing tax avoidance 21st Report: Work Programme 22nd Report: Out of hours GP services in England 23rd Report: Transforming contract management 24th Report: Procuring new trains 33rd Report: Oversight of the Private Infrastructure Development Group (PIDG) Presented to Parliament by the Economic Secretary to the Treasury by Command of Her Majesty Cm 9013 February 2015



THE COMMITTEE OF PUBLIC ACCOUNTS: SESSION 2014-15 © Crown copyright 2015 This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gsi.gov.uk.

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Print ISBN 9781474115193 Web ISBN 9781474115209 Printed in the UK by the Williams Lea Group on behalf of the Controller of Her Majesty’s Stationery Office ID 06021501 02/15 Printed on paper containing 75% recycled fibre content minimum Eighteenth Report of Session 2014-15 HM Revenue and Customs HMRC’s Progress in improving tax compliance and preventing tax avoidance 1: Committee of Public Accounts conclusion HMRC collects around £500 billion a year from UK taxpayers. Since the 2010 spending review, it has been specifically funded to do more compliance work to secure more tax revenues. HMRC measures the impact of its compliance work by estimating 'compliance yield'—the additional revenue it generates through its activities to identify and prevent tax losses, arising from avoidance, evasion and criminal attack. In 2013-14, it exceeded the target it had agreed with the Treasury, reporting compliance yield of £23.9 billion, £5.3 billion more than in 2011-12.

1.1 On the basis of the published HMRC Annual Report and accounts 2013-14, the Committeetook evidence on 16 July, 2014 from HMRC. The Committee published its report on 18 November 2014. This is the Government response to the Committees report.

Background resources HMRC report: HMRC Annual Report and Accounts 2013-14 – Session 2013-14 (HC 19) PAC report: HMRC’s progress in improving tax compliance and preventing tax avoidance Session 2014-15 (HC 458) 2: Committee of Public Accounts conclusion HMRC made a £1.9 billion error when it established its baseline and set targets for its compliance work. This meant it presented misleading information to Parliament about the improvement in its performance.


HMRC should ensure the governance arrangements around its key performance indicators are sufficiently robust, and subject to adequate internal and external challenge, before they are reported publicly.

2.1 The Government agrees with the Committee’s recommendation.

Recommendation implemented.

2.2 The error was in the baseline calculation rather than the departments reported performance figures. The NAO review has concluded that the department’s methodology and processes for estimating and compiling yield were sound and that the measure provides a reasonable proxy for the beneficial impacts of their compliance work. It is confident that their measures provide a robust assessment of compliance yields. The department’s performance numbers are subject to scrutiny through the management chain. There is a programme of work in place with its Internal Audit function and the NAO for 2014-15. The Treasury will also have greater oversight of the department’s compliance outturn.

3: Committee of Public Accounts conclusion HMRC is not properly transparent and clear about the different levels of certainty around compliance yield that it reports.


HMRC should be more transparent about its compliance yield estimates by publishing more detail about how it calculates compliance yield, being clearer about how much it has actually collected in cash terms and explaining how uncertainty affects its estimates.

3.1 The Government agrees with the Committee’s recommendation.

Recommendation implemented.

3.2 The department has recognised the need to provide more information to aid understanding of its complex performance, and has therefore provided a more detailed breakdown of compliance revenues in its 2013-14 Annual Report, published on 3 July 2014. The department will continue to provide explanatory information whenever it publishes its compliance revenue outturns.

4: Committee of Public Accounts conclusion There has not been consistency in the way HMRC has measured compliance yield which makes it hard to hold HMRC to account for its performance over time.


HMRC should maintain a comparable measure of compliance yield over time and report clearly the impact of any changes it makes to its methodology in its key accountability statements to Parliament.

4.1 The Government disagrees with the Committee’s recommendation.

4.2 The department is committed to transparency around any changes to its compliance yield scoring methodology. It will ensure that any changes will be set out clearly in the following annual report.

However, the department understands that it may not always be possible, or practical, to make comparisons over time. This is because it is important that the department’s methodology for assessing the effects of its compliance activities keeps pace with the developments of the compliance work. In future, the work the department carries out may change so significantly that it would be unable to maintain a comparable time series.

5: Committee of Public Accounts conclusion HMRC’s action against tax avoiders continues to be unacceptably slow, putting tax revenues at risk.


Parliament has granted HMRC new powers to tackle tax avoidance. HMRC should report on the progress it has achieved by using these new powers (for example, in its Annual Report) and demonstrate to Parliament that it is using its existing powers with sufficient urgency.

5.1 The Government agrees Committee’s recommendation.

Target implementation date: 1 April 2016.

5.2 The department received new powers in Finance Act 2014 introducing the Follower Notice and Accelerated Payment notice regimes. The department has plans and resources in place to issue 43,000 Accelerated Payment notices by the end of March 2016. The department has been issuing notices in accordance with the plan and will report progress in its Annual Report. Follower Notices depend on there being relevant final judicial decisions. The department has reviewed decisions in avoidance cases and started to issue Follower Notices as a result, with progress to be reported in its Annual Report.

5.3 The department has been given new powers in connection with High Risk Promoters. These are expected to apply to a small number of scheme promoters. The department will provide an update on activity under the regime, which will be available in the Annual Report. Disclosure Of Tax Avoidance Scheme (DOTAS) statistics will continue to be published on the website.

6: Committee of Public Accounts conclusion HMRC does not do enough to tackle companies which exploit international tax structures to minimise UK tax liabilities.


The Treasury and HMRC should provide the Committee with details of progress in identifying and addressing the ways that international tax structures are exploited, and set out the actual costs and benefits of recent changes to the UK’s tax regime.


6.1 The Government disagrees with the Committee’s recommendation.

6.2 The Government announced at the Autumn Statement 2014 that it will introduce a new tax – the “Diverted Profits Tax” – to counter the use of contrived arrangements used by multinational enterprises to divert profits from the UK. The Diverted Profits Tax will be applied using a rate of 25% from 1 April 2015.

The measure is targeted at contrived arrangements used to shift profits away from the UK in a manner that ensures they go untaxed or largely untaxed. The measure is designed to counter the erosion of the UK tax base as a result of complex structures that circumvent the international tax rules on permanent establishment and transfer pricing. Draft legislation for the Finance Bill 2015 was published on 10 December 2014, with a tax information and impact note and an explanatory note. The Office for Budget Responsibility has certified the central estimate of tax yield from this measure to be £1.4 billion over the next five years to 2019-20.

6.3 The Government also announced at the Autumn Statement 2014 UK action on two of the internationally agreed 2014 outputs of the G20-OECD Base Erosion and Profit Shifting project. The UK will introduce legislation to implement the G20-OECD agreed model for country-by-country reporting, which will require multinational companies to provide tax authorities with high-level information on profit, corporation tax paid and certain indicators of economic activity for risk assessment. Draft legislation for the Finance Bill 2015 was published on 10 December 2014, with a tax information and impact note and an explanatory note. Furthermore, a consultation document on the UK plans for implementing the G20OECD agreed rules for neutralising hybrid mismatch arrangements was published at the Autumn Statement 2014.

6.4 The proposed hybrid mismatch rules will tackle tax avoidance by multinationals which exploits differences between two countries’ tax rules either to avoid paying tax on profits in either country, or to obtain tax relief in both countries for an expense incurred in one.

6.5 In addition to the measures announced at Autumn Statement 2014, the UK’s corporation tax base is protected by a number of other rules. These include Controlled Foreign Company (CFC) rules which protect against artificial diversion of UK profits. Better targeted and more effective CFC rules were enacted by Parliament in 2012; these rules have not been challenged by the OECD or the European Commission as harmful.

6.6 The impacts of any changes to the UK tax regime are clearly set out in Tax Information and Impact Notes (TIINS). TIINS also set out the Government’s intentions for the monitoring and evaluation of tax measures. However, it is not possible to produce cost-benefit analyses of individual changes to the tax regime because changes to the tax system are not appropriate for cost-benefit analysis. Tax is a transfer of resources to the Government sector, from the non-Government sector, rather than an expenditure with an economic cost, which uses economic resources. Individual changes to the tax system are not susceptible to cost-benefit analyses in the same way as public expenditure.

6.7 Although it is not possible to produce cost-benefit analyses of tax changes in the same way as for spending, the Policy costing’s document and TIINS do provide some evidence of the expected impacts of changes in tax measures, including Exchequer impacts, behavioural effects, and impact on administrative costs. In some cases, the Government has also published dynamic analysis of certain tax changes.

6.8 Departmental Accounting Officers are accountable to Parliament and the public on the management of public funds, which includes value for money.

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