Treasury blasted for not clamping down on billions in tax relief fraud

Public accounts committee also hits out at HMRC

Spending watchdogs have rebuked the Treasury and HMRC for failing to prevent some of the 398 different tax reliefs being exploited (Getty Images)

The Treasury has been accused of putting billions of pounds of taxpayers’ money at risk by failing to crack down on abuse of tax reliefs.

In a report published today, spending watchdogs have rebuked the Treasury and HMRC for failing to prevent some of the 398 different tax reliefs being exploited by people making false claims.

The National Audit Office (NAO) studied 10 of them and found that only limited action had been taken after the cost of relief for entrepreneurs rocketed from £500m in 2008-09 to £2.9bn in 2013-14, three times more than forecast.

According to the NAO, large scale abuse of relief on losses from shares bought in small companies was detected in 2006-07, when claims soared from £385m to £1.2bn. HMRC is investigating £964m of this amount for suspected avoidance. It has detected 20 such schemes since and is inquiring into whether £780m was wrongly claimed.

Margaret Hodge is "deeply concerned" that abuse or fraud was going undetected (Getty Images)

Margaret Hodge, Labour chairman of the Public Accounts Committee, said it was "beyond belief" that HMRC was not monitoring the system more closely.

"Tax reliefs designed to encourage a change in behaviour, such as promoting jobs and growth or investment in the arts, also create opportunities for exploitation," she said. “It is beyond belief that HMRC has not put in place a framework or principles to guide how it manages and administers tax reliefs."

She said her cross-party committee was "deeply concerned" that abuse or fraud was going undetected.

Amyas Morse, head of the National Audit Office, said: “HM Treasury and HMRC do not keep track of tax reliefs intended to change behaviour, or adequately report to Parliament or the public on whether tax reliefs are expensive or work as expected. Until they monitor the use and impact of tax reliefs, and act promptly to analyse increases in their costs, HMRC and the Treasury’s administration of tax reliefs cannot be value for money.”

A spokesperson for HMRC said: "It is nonsense to suggest that our administration of tax reliefs loses money. We protect the Exchequer, while making sure that reliefs work as Parliament intended. We robustly monitor the implementation of reliefs, and identify and tackle abuse as a routine part of our compliance work, as we demonstrated in detecting and tackling abuse of share loss relief. We have highly-effective measures in place to ensure that tax reliefs only benefit those for whom they are intended."