Poor tax scrutiny has enabled abuse and fraud, MPs warn
Poor scrutiny of the “complex” tax system has led to relief abuse and even fraud, an influential finance committee of MPs have warned.
The Treasury Committee is calling for a systematic review into the cost of over a thousand forms of tax relief which they say are “complex, un-costed and exploited” in a new report.
Chairwoman Harriet Baldwin said: “Our tax system is too complicated, and the proliferation of un-costed tax breaks add to that complexity.
“HM Revenue and Customs (HMRC) and the Treasury need to work hand in glove to get a grip on the complexity, lack of transparency and potential for abuse.”
Tax reliefs allow individuals and companies to reduce their tax when they meet conditions, such as firms investing in research and development, or workers benefiting from their personal allowances.
During an inquiry into the system, MPs were told there are more than 1,180 tax reliefs currently operating, but just 365 have official costings, leading to risks of abuse and fraudulent usage.
‘Ever-expanding tax code’
They urged ministers to order a comprehensive review to find opportunities to simplify the system; to reclassify reliefs as government spending; and give departments more responsibility for budgeting.
HMRC analysis found 105 of the 1,180 reliefs cost the public purse a total of £195bn – and the MPs have urged the body to publish all relief costs from the tax year 2025 – 2026 onwards.
The committee also called for five-yearly reviews to remove reliefs which no longer achieve policy objectives, are vulnerable to abuse or cost significantly more than expected.
Baldwin added: “While some reliefs are very effective, others are prone to abuse or simply lie dormant, cluttering the ever-expanding tax code.
“The fact we only have costings for a third of reliefs is staggering and something which needs rectifying with urgency.”
A government spokesperson said: “Tax reliefs are a key way we can support fairness in the system and encourage activity that can help grow our economy.
“Keeping tax simple remains a priority, as seen with the recent abolition of the pensions Lifetime Allowance and reforms to alcohol duty. Additionally, HMRC continue to take action against tax relief fraud, more than doubling the number of people working in R&D compliance.”