The government crackdown on tax avoidance lacks the muscle to stamp out the rampant practice involving tens of thousands of people, the National Audit Office warned in a report on Wednesday.
HM Revenue and Customs has failed to curb the rising tide of new avoidance schemes, thought to cost around £10.2bn in lost tax, despite ramping up efforts to address the problem in recent years, said the public spending quango.
Tax officials face a mountain of 41,000 avoidance cases relating to mass-marketed schemes used by individuals and small businesses, with no clear strategy on how to tackle the problem.
“HMRC must push harder to find an effective way to tackle the promoters and users of the most aggressive tax avoidance schemes,” said Amyas Morse, head of the NAO.
“Though its disclosure regime has helped to change the market, it has had little impact on the persistent use of highly contrived schemes which deprives the public purse of billions.”
Rules requiring disclosure of certain avoidance arrangements have unearthed more than 2,000 schemes since 2004.
The so-called DOTAS regime has led to nearly 100 tax law changes, but leaves HMRC on the back foot while new schemes designed to circumvent the revised law enter the market.
While HMRC believes most new schemes would be defeated in court, the length and expense of litigation restricts officials to focus on certain 'lead cases’. But it is not clear that selective legal action deters other providers and users.
A spokesman from HMRC said: “As the avoidance landscape changes, so must our approach.
“The Government is building on DOTAS to give HMRC stronger powers to obtain information. These, together with the introduction of an anti-abuse rule in 2013 will further strengthen our anti-avoidance work.”