UK Tax Avoidance: PAC criticises UK's HMRC for being too corporate-friendly (Photo: Reuters)
UK Tax Avoidance: PAC criticises UK's HMRC for being too corporate-friendly (Photo: Reuters)

The Public Accounts Committee has slammed Britain's taxman for being too corporate-friendly and has urged HMRC to start taking companies to court in order to force them to pay more tax.

According to PAC's annual report on tax collection performance, the panel of politicians said that the HMRC is too lenient on big business and, as a result, the UK is losing billions of pounds worth of extra tax collection.

"In pursuing unpaid tax, HMRC has not clearly demonstrated that it is on the side of the majority of taxpayers who pay their taxes in full," said the report.

"It does not use the full range of sanctions at its disposal to pursue vigorously all unpaid tax, and its measure of the tax gap does not capture all the avoided tax that it should be collecting.

"HMRC massively over-estimated how much it would collect from UK holders of Swiss bank accounts, and in 2013-14 has so far collected only £440m (€527m, $721m) of the £3.12bn predicted in the 2012 Autumn Statement.

"HMRC is not doing enough to collect tax credits debt or to tackle tax credit error and fraud.

HMRC has not clearly demonstrated that it is on the side of the majority of taxpayers

"When determining the tax regime for businesses, HMRC needs to strike the right balance between support and enforcement. It has not considered adequately the impact that measures designed to make the UK a more attractive place for large businesses to operate would have on the way companies structure their business, and how this would affect tax receipts from them."

HMRC is responsible for collecting UK taxes and duties from businesses and individuals and providing financial support to taxpayers through tax credits. It says that it aims to deliver three "strategic priorities": to improve customer service; to reduce operating costs; and to reinvest money from its efficiency savings to generate increased tax revenue.

In 2012-13, HMRC reported that it had brought in £475.6bn of revenue, an increase of £1.4bn or 0.3% in cash terms compared to 2011-12.

Tax revenue therefore fell in real terms in 2012/13 as compared to 2011/12.

Global authorities have worked to close tax loopholes, which allow companies to legally pay small amounts of tax, compared with profits.

For example, the European Commission is moving closer to seal corporate tax loopholes that allow firms to exploit a system to prevent double taxation, but it needs the backing of all European Union member states first.

The UK is also working with the G20 countries to forge new rules on corporate tax avoidance.

However, the PAC said that the HMRC was not challenging giant tech companies in court on their complex corporate tax structures.

"HMRC should be more willing to pursue prosecutions against individuals and large businesses to test the boundaries of the law," said PAC in its report.

Recently, analysts have said that Apple has sheltered $40bn from taxation using Ireland's loophole.

Despite the strong criticism from PAC, the group is unable to force HMRC to change its policies.