The taxman isn’t doing enough to tackle tax fraud – despite it costing the UK £16bn a year.

That’s the damning verdict of the Public Accounts Committee, a group of MPs that oversees public spending. 

The committee’s latest report reveals that almost half of the UK’s £34bn tax gap – the difference between the amount of tax HMRC collects and how much it should theoretically get – can be attributed to tax fraud. 

Published today, the report titled ‘Tackling tax fraud’ says the department has made “only limited progress” in reducing the level of losses, which has remained pretty much constant for the past five years.

The public purse is missing out on some £16bn in tax a year because of evasion and other criminal activities

Meg Hillier, chairman, Public Accounts Committee
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It also accuses HMRC of not setting out a clear strategy for dealing with tax fraud and says the department does not know what meeting its own target of 1,000 additional prosecutions has achieved. 

The committee wants HMRC to set out a new strategy to tackle fraud by November and to undertake more investigations targeting wealthy tax evaders.

Committee chairman Meg Hillier said: “The scale of tax fraud, both in cash terms and as a proportion of uncollected tax, demonstrates just how vital it is for HMRC to bring focus to its efforts in this area.

The Panama Papers – a leak of 11.5m files from the database of law firm Mossack Fonseca – has shown how rich individuals use offshore accounts for tax purposes. Image by dennizn/Shutterstock.com

“The public purse is missing out on some £16bn in tax a year because of evasion and other criminal activities. When people break the law, there must be consequences – and there must be seen to be consequences. 

“Honest taxpayers rightly expect a tax system that works fairly for all and any perception that this is not the case undermines the public’s trust in that system. Its credibility is at risk.”

Labour MP Ms Hillier said the release of the Panama Papers shows how many wealthy people and companies are keeping their tax affairs secret. 

“Where this secrecy involves criminal activity, prosecution must follow – and the threat of prosecution must serve as an effective deterrent to others, she said.

“The department must be far clearer with Parliament and the public about its strategy for combatting tax fraud and the impact of that strategy on the tax gap. To achieve this it needs a better grasp of its own work.

“The evidence we heard from HMRC did not convince us it properly understands the effectiveness of the different enforcement and deterrent tactics it employs. This is a fundamental weakness in its strategy.”