Skip to main content

Treasury Committee calls for action on complex, un-costed and exploited tax reliefs in new report

26 July 2023

The Treasury Committee today calls for a systematic review into the cost of over a thousand tax reliefs which complicate the tax system and are open to abuse.

Tax reliefs reduce the amount of tax an individual or company pays when they meet certain conditions. Some, such as relief for businesses investing in research and development or tax credits for firms developing video games, are designed to promote particular activities. Others, such as the personal allowance someone receives before paying income tax, are structural aspects of the tax system.

During its inquiry, the Committee heard there are over 1,180 tax reliefs in operation, but just 365 have official costings.

In a new report, the cross-party Committee of MPs concludes that the tax system is too complex and the scrutiny of existing reliefs is inadequate. This has contributed to the abuse of some tax reliefs, and in certain cases, fraud.

The Committee calls on the Government to undertake a comprehensive and systematic review of existing tax reliefs to look for opportunities for simplification and to monitor for abuse and fraud.

While the overall cost is unknown, HM Revenue & Customs (HMRC) analysis found that 105 of the 1,180 reliefs cost the public purse a total of £195 billion. The Committee calls on HMRC to publish costings for all reliefs from the 2025 – 2026 tax year onwards.

The MPs conclude that the disparity between scrutiny of tax reliefs compared to direct public expenditure is stark and recommend reliefs be reclassified as Government spending. The Government should consider how individual departments can take more responsibility for budgeting reliefs to increase Ministerial accountability and oversight.

The MPs also recommend the Government institutes five-yearly reviews of tax reliefs and removes reliefs which no longer achieve policy objectives, are vulnerable to abuse or cost significantly more than expected.

Chair comment

Commenting on the report, Harriett Baldwin MP, Chair of the Treasury Committee, said:

“Our tax system is too complicated, and the proliferation of un-costed tax breaks add to that complexity. 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.

“HMRC and the Treasury need to work hand in glove to get a grip on the complexity, lack of transparency and potential for abuse. We thank all those who gave evidence to our inquiry and look forward to receiving the Government’s response.”

Further information

Image credit: Pixabay