TaxWatch Acting Director Alex Dunnagan gave evidence to the Treasury Select Committee (TSC) on Monday 19th December highlighting the abuse of tax reliefs.
In November we submitted written evidence to the TSC for their inquiry on tax reliefs, focussing on both Creative Sector reliefs and the R&D reliefs.
TaxWatch’s evidence pointed out that Creative Sector reliefs are costing far more than anticipated, with the vast majority of these reliefs going to large multinational corporations. These multinationals are developing entertainment products that would likely have been produced regardless of whether or not the relief was available.
We also highlighted that companies claiming hundreds of millions of pounds in reliefs are engaging in profit shifting. These multinationals are producing games and films in the UK while claiming relief, then selling the taxpayer subsidised intellectual product at effectively cost price to overseas parent companies. It is these overseas companies, usually US based, which then distribute the product, generating significant profits, and with that, significant Corporation Tax bills outside the UK.
As for R&D reliefs, we pointed out that HMRC’s estimate of fraud and error with R&D relief (£469m in 2021-22) is likely a significant underestimate. While the true scale of abuse with R&D reliefs is not known, it could well costs billions of pounds every year. Without adequate compliance checks, we will simply never know the true scale of fraud and error.
Our evidence also pointed out that there are tax advisers boasting of 100% success rates in applying for R&D relief. There are companies that offer software which auto-generates relief claims, and accountants stating that it is the government intent to provide R&D relief for things such as cocktails and menu updates. This clearly is not the intent of Parliament.
Treasury Select Committee session
In addition to the facts presented in the written evidence, during the oral evidence session, Alex was able to highlight the lack of scrutiny these reliefs receive. There are close to 1,200 reliefs, the majority of which receive little to no government scrutiny. Even the smaller reliefs can have expenditures larger than government departments. Video Games Tax Relief, originally forecast to cost £35m a year, cost £197m in the year ending March 2022. The Serious Fraud Office by comparison had a budget of £74m last year.
The session was attended by Harriett Baldwin (Chair); Rushanara Ali; Anthony Browne; Dame Angela Eagle; Danny Kruger and Siobhain McDonagh. The panel consisted of Alex Dunnagan, Acting Director, TaxWatch; Dr Hosam Al Kaddour, Head of Teaching and Learning, Accounting Department, University of Southampton; Anita Monteith, Head of Taxation Policy, Institute of Chartered Accountants in England and Wales; and Dr Jo Twist OBE, CEO at UK Interactive Entertainment.
TaxWatch welcomes any opportunity to present further evidence on tax reliefs.
The full transcript for the evidence session is available here.