HMRC is keen to report how much tax it collects each year, as that is its mission – to collect “the right amount of tax” from each taxpayer. But HMRC is seemingly less keen on measuring how much tax it forgoes each year in the form of tax reliefs and allowances and whether those tax reliefs are working effectively or are being abused. This is a never-ending story.
Tax Relief: The OTS asks the question
One of the first tasks of the Office of Tax Simplification (OTS) in 2010 was to list all of the tax reliefs allowances and exemptions then in existence (it counted 1,042) and identify those reliefs which should be repealed or simplified, in order to move towards a simpler tax system. It was not possible for the OTS to examine every one of those tax reliefs, so it concentrated on 15% of them to review in detail.
In its final report on tax reliefs the OTS suggested that 47 reliefs should be abolished, 37 be looked at in more detail, 54 should remain unchanged and 17 should be simplified. Incidentally, the OTS revisited the list of tax reliefs in 2014 when it found the number of reliefs had actually grown to 1,140.
Tax Relief: The NAO picks up the baton
In 2014 the National Audit Office published The effective management of tax reliefs report. This found that “HM Treasury and HMRC have not identified which tax reliefs are intended to change behaviour in order to deliver targeted policy objectives. They also do not monitor or report their costs and benefits in a way that would allow wider government, Parliament or the public to know if such reliefs are working as intended.” So black marks all round.
Tax Relief: The PAC puts on the gloves
The House of Commons Public Accounts Committee has examined the management and effectiveness of tax reliefs on at least three previous occasions in 2014, 2015 and 2020. In its 2014 Tax reliefs and their administration report the PAC concluded that there is a lack of transparency and accountability for tax reliefs and no adequate system of control, following their introduction. One of its recommendations was that HMRC should “provide proportionate feedback, and analysis to Parliament, on the costs of principal tax reliefs each year, including significant changes in costs”.
In 2015 the PAC looked at the effective management of tax reliefs and noted: “HMRC publishes a list of current tax reliefs each year, showing an estimated cost, but the list is poorly defined, incomplete and inaccurate”. It recommended that “HMRC should publish and maintain an up-to-date list of tax reliefs using a definition agreed with the Office of Tax Simplification that sets out each relief’s purpose and its cost to the Exchequer”.
In 2020 the PAC was clearly frustrated by the lack of action and in Its ‘ Management of tax reliefs report’, it referred back to the 2015 review saying: “In the five years since then, HMRC has not evaluated any of the ten largest tax reliefs supporting government’s economic and social objectives.”
Tax Relief: Treasury committee report
Moving on to this year, in July the Parliamentary Treasury Committee issued a report on the operation of tax reliefs in the UK tax system, giving the government two months to respond. One of its key recommendations is that HMRC should “publish cost data for all tax reliefs from the 2025/26 tax year onwards”. It also called for government to “reclassify tax reliefs as government expenditure. This would subject reliefs to established value for money assessment, leading to improved scrutiny and ultimately better policy.”
Tax Relief: What will Jeremy Hunt do?
The forces of simplicity and fairness pull in opposite directions across the field of tax reliefs – a simple flat tax is easy to administrate, but it may be unfair to certain taxpayers, so a relief is added in order to ease the burden of those who shout the loudest. No one checks the cost or assesses the benefits, and the tax system becomes more complex year by year.
As the Treasury Committee said: “Tax reliefs make the system more complex for taxpayers and open up opportunities for abuse. Governments tend to introduce new reliefs, but rarely remove those which are redundant, making these problems progressively worse. This works against the Government’s stated aim, which we support, of simplifying the tax system.”
So time to get your thinking cap Mr Chancellor and finally conduct a meaningful review of all tax reliefs, with the intent to drastically reduce their number and complexity.
Tax Accountant’s view
Despite being asked multiple times by various official bodies and MPs, HMRC continues to firmly keep its head planted in the sand on the subject of tax reliefs.
Personally, I agree with the Treasury Committee’s report in July, when they came up with the suggestion of showing the cost of tax reliefs on HMRC’s Balance Sheet. It is only the spotlight of public scrutiny that is likely to get HMRC to finally address the elephant in the room.