Bridget Phillipson, Member of Parliament for Houghton and Sunderland South, has joined her colleagues on the Public Accounts Committee (PAC) in calling for the government to be tougher and clearer in its approach to taxing the very wealthy.

In a new report, the PAC sets out measures to enable HM Revenue & Customs (HMRC) to improve tax collection, be more transparent about its work, seek new powers where required and do more to tackle those involved in tax avoidance and evasion. [1]

In light of changing behaviour that has seen avoidance “moving from off the peg marketed tax avoidance schemes to complex bespoke schemes”, the report also calls on HMRC to assess what more it could do to deter very wealthy taxpayers from bending or breaking the law.

The report follows an inquiry by the PAC into collecting tax from high net worth individuals held last December. [2]

During that inquiry, Bridget Phillipson MP made headline news [3] by questioning HMRC officials about the rules concerning investment by high net worth individuals in Enterprise Zone Allowance (EZA) schemes. [4]

Investors in these schemes benefitted from generous tax allowances that enabled them to claim 50% tax relief on the cost of their investment before the allowances were scrapped in April 2011.

According to a recent report by the BBC, millions of pounds in tax relief given to celebrities via an EZA scheme that led to the construction of two data centres on the Cobalt business park in the North Tyneside Enterprise Zone is now being clawed back by HMRC. [5]

At the PAC inquiry in December, Bridget Phillipson MP pressed HMRC officials to provide clarity to both taxpayers and investors over what was going on at the site. [6]

Although HMRC is unable to comment on a specific case, it has since confirmed to the PAC in writing that it has 25 EZA schemes under investigation, covering around 5,300 investments with total tax under consideration of over £400million. [7]

HMRC explicitly stated in that written evidence that the fact that statutory tax relief such as EZA has been claimed does not automatically mean that the relief is due. It also expressed concern that the conditions for EZA relief have not been met by a number of investment projects in respect of which relief has been claimed.

Finally, HMRC defended the time that it has taken to investigate the EZA schemes as the result of the process of requesting and analysing large amounts complicated documentation from taxpayers, including building and financing contracts.

Speaking after the publication of the PAC report, Bridget Phillipson MP said:

“This report is clear that the government must take a tougher stance on taxing the very wealthy.

“It sets out measures to enable HM Revenue & Customs (HMRC) to improve tax collection and give the public greater confidence that there is not one set of rules for the rich and another for everyone else.

“One way in which HMRC can do this is by playing a stronger role in identifying tax measures which are not being used as Parliament intended, and pushing harder for reform where the rules are open to abuse.

“This was a point that I stressed during the PAC inquiry last year when I questioned HMRC officials about the rules concerning investment in Enterprise Zone Allowance (EZA) schemes.

“Since then, HMRC has confirmed that it has 25 such schemes under investigation, with total tax under consideration of over £400million.

“That is a lot of money, and taxpayers deserve to know how it has been spent.

“There is also an important principle at stake here. These schemes were designed to encourage investment in enterprise zones, which were set up in regions like the north east to drive economic growth.

“It would be simply unacceptable if a system intended to stimulate economic growth in deprived areas was left open to exploitation by those with no interest in supporting local jobs and investment.

“I understand that investigations of this nature can take time, but I know that many of my constituents will join me in calling for HMRC to complete its investigations into these schemes as soon as possible.

“Like my colleagues on the PAC, I also expect HMRC to respond positively to the full recommendations set out in our report today.”

This story also featured in the Chronicle on 29 January 2017.

References

[1] House of Commons Committee of Public Accounts Thirty-sixth Report of Session 2016-2017: ‘Collecting tax from high net worth individuals’, published 27 January 2017: http://www.publications.parliament.uk/pa/cm201617/cmselect/cmpubacc/774/774.pdf

[2] Public Accounts Committee Inquiry: High Net Worth Individuals & HMRC: http://www.parliament.uk/business/committees/committees-a-z/commons-select/public-accounts-committee/inquiries/parliament-2015/high-net-worth-individuals-hmrc-16-17/

[3] ‘HMRC claws back celebrities’ tax profit on empty data centres’, BBC News, 15 December 2016, http://www.bbc.co.uk/news/uk-england-tyne-37645051

[4] See Public Accounts Committee Inquiry: High Net Worth Individuals & HMRC -; Oral evidence, 7 December 2016, Q127-Q133: http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/public-accounts-committee/high-net-worth-individuals-and-hmrc/oral/44226.html/#

[5] ‘HMRC claws back celebrities’ tax profit on empty data centres’, BBC News, 15 December 2016, http://www.bbc.co.uk/news/uk-england-tyne-37645051

[6] Public Accounts Committee Inquiry: High Net Worth Individuals & HMRC -; Oral evidence, 7 December 2016, Q133: http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/public-accounts-committee/high-net-worth-individuals-and-hmrc/oral/44226.html/#

Q133Bridget Phillipson:I appreciate that you look at what you can claw back by looking at some schemes, but you may have, say, an enterprise zone, where the whole point is to drive jobs and investment, and that could be exploited to do quite the opposite. Evenif you put to one side the amount of money-the yield-that you could arrive at from your investigations, if you have schemes that are designed to support parts of the country with enterprise zones, it is about the principle at stake as well-that you have a system set up to support regeneration and investment, that is then exploited by others with no interest in regeneration or investment, simply to line their own pockets.

Jon Thompson:Sure. I understand the point that you are making, and I think what we have said is that we will try and give you a detailed update if you can just tell us a bit more-

[7] See written response from HM Revenue & Customs to Q127 by Bridget Phillipson MP, published by the PAC on 11 January 2017: http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/public-accounts-committee/high-net-worth-individuals-and-hmrc/written/44609.pdf