Tax evasion in retail: PAC to challenge HMRC on evident gaps in controls
The Public Accounts Committee (PAC) holds an evidence session on tax evasion in the retail sector at 3.30pm on Monday 16 December, following the National Audit Office’s (NAO) recent report on the topic.
Meeting details
Tax evasion costs HM Revenue & Customs (HMRC) £5.5bn in lost revenue a year, causing a major annual hit to the public purse and giving evaders an unfair competitive advantage. It is most prevalent amongst small businesses, which make up 81% of total evasion. This is a significant increase from its proportion of 66% in 2019-20, despite levels of evasion overall remaining stable.
Significant gaps remain in systems which could help prevent evasion in the retail sector, and potentially more broadly. HMRC does not estimate evasion levels by sector, although it does sometimes undertake campaigns targeted at certain retailers it has identified as higher risk, such as sweet shops or takeaways. While online marketplaces are now liable for VAT from overseas sellers, this has been undermined by the ease with which retailers can falsely register as UK-based to evade VAT on their UK sales.
Authorities are still finding it challenging to disqualify company directors for contrived insolvency and phoenixism (the continuation of the same company in all but legal name, after defaulting on debts). The NAO has highlighted examples of suspicious data on the UK company register, finding 29 individuals who were each appointed as a director of more than 2,000 companies, with one associated with around 50,000. Several companies included a director called Miser Lord Trueman Michael Scr00ge-Spypriest.
The NAO found that HMRC does not have a specific strategy for addressing tax evasion, nor an objective for its performance in tackling the issue. Prosecutions resulting from HMRC's criminal investigations reduced from 749 in 2018-19 to 344 in 2023-24. The NAO further found that HMRC knows neither how successful it is in tackling evasion nor how effective it is at deterring would-be evaders, and has not used some of the powers it has to respond to the problem.
MPs will hear from senior officials from HMRC, The Insolvency Service and Companies House, on topics including:
- Whether HMRC’s strategic approach is enough to tackle tax evasion;
- Evident gaps in controls; and
- Work to respond to and prevent different forms of evasion in the retail sector.