The Commons Public Accounts Committee’s (PAC) report highlights loopholes and a lack of “sufficient curiosity” within HMRC regarding the scale of the problem.

The PAC’s report points to several areas of concern. VAT registration processes are described as “far too open to abuse”, with insufficient checks on business addresses. The committee also criticises HMRC’s reliance on “risk-based” assessments and due diligence rules for online marketplaces, arguing that these are inadequate. Furthermore, the report highlights the ease with which overseas traders can falsely register as UK sellers and companies due to lax checks at both HMRC and Companies House, giving them an unfair advantage.

The PAC report also criticises the lack of collaboration between HMRC, Companies House, and the Insolvency Service. While a joint plan for closer collaboration is being developed, a joint HMRC-Companies House registration service is estimated to be 5-10 years away, a timeframe deemed too long by the committee.

The report also highlights the low number of prosecutions for tax evasion and the limited action against “phoenixing” – a practice in where firms become insolvent and then re-establish under a new registration. The Insolvency Service’s disqualification of directors for phoenixing is also considered inadequate.

The PAC’s inquiry suggests that between 5% and 20% of UK registered companies were fraudulent in 2023. The committee has urged HMRC and the Insolvency Service to present a plan within six months to tackle tax evaders and rogue directors.

Committee Chairman Sir Geoffrey Clifton-Brown expressed deep concern that “many billions” in tax revenue could be lost and called for a clear strategy with measurable outcomes to address the issue. He stressed the need for a tighter grip on tax avoidance to prevent further losses to the public purse.