The House of Commons’ Public Accounts Committee (PAC) has published its report on the 'Management of Tax Reliefs'. It concludes that HMRC and HM Treasury need to improve their reporting on the cost, beneficiaries and impact of tax reliefs so that parliament can scrutinize the value for money of these benefits.
The PAC had opened an inquiry in June into the UK's management of ‘tax expenditures’ and tax reliefs provided for certain activities or goods, an area it has kept under review for the last ten years.
Tax reliefs in the UK can be split into two categories:
- Structural reliefs that are integral to the tax system such as basic rate Income Tax relief.
- Non-structural reliefs or tax expenditures where the government decides to not collect tax for social or economic reasons like R&D tax credits or tax relief for Pension Contributions.
- There are 362 such reliefs in the UK although most are small in terms of cost to the exchequer.
The committee identified that the biggest tax expenditures in the UK, which are often also the most difficult to evaluate, are:
- Tax relief for pension contributions.
- Not charging VAT on food or residential property.
- Not charging Capital Gains Tax (CGT) on the sale of the main home i.e. Private Residence Relief (PRR).
The report concludes that:
- Tax reliefs have an enormous impact on tax revenue but it is far from clear whether they deliver the economic and social objectives many are supposed to support.
- The full cost of tax reliefs that support the government’s economic and social objectives is not known and could exceed £159 billion a year.
- The impact of COVID-19 on public finances means that it is ever more important that tax reliefs are demonstrably cost-effective.
- Despite the PACs repeated examination of this topic since 2013, HMT and HMRC have made unacceptably slow progress in improving their management of tax reliefs.
- HMRC and HM Treasury need to markedly improve their reporting on the cost, beneficiaries and impact of tax reliefs in order to give Parliament the information it needs to scrutinise the value for money of these schemes. The PAC look to them to provide this information quickly.
External links
PAC report: Management of tax reliefs
Inquiry: Management of tax reliefs
Public accounts committee Oral evidence on the management of tax reliefs of 10 June 2020