MPs warn accountants using 'insider knowledge' to help people avoid tax

MPs have called for an end to the practice of seconding accountants to the Treasury after a report found big accountancy firms using "insider knowledge" to help companies and wealthy individuals exploit tax loopholes.

The Commons Public Accounts Committee said it was "very concerned" at the way the "big four" firms - Deloitte, Ernst and Young, KPMG and PwC - were able to exploit loopholes in tax laws.

Committee chairman Margaret Hodge said the practice represented a "ridiculous conflict of interest" which should be banned.

"The large accountancy firms are in a powerful position in the tax world and have an unhealthily cosy relationship with government," she said.

The committee warned that HM Revenue & Customs (HMRC) was engaged in a "battle it cannot win" in seeking to stem the losses to the Exchequer from tax avoidance.

It had far fewer resources than the big four firms which employed almost 9,000 staff and earned £2 billion a year from their tax work in the UK.

The committee particularly highlighted the way the firms seconded staff to the Treasury to advise on technical issues in the drafting of legislation only for the individuals concerned to return to advise clients on how to use those laws to avoid tax.

"Through their work in advising government on changes to legislation they have a detailed knowledge of UK tax law, and the insight to identify loopholes in new legislation quickly," it said.

It gave the example of KPMG whose staff advised on the development of "controlled foreign company" and "patent box" rules, and then issued marketing brochures highlighting the role they had played.

The brochure "Patent Box: what's in it for you" had, it said, suggested the legislation represented a business opportunity to reduce UK tax and that KPMG could help clients in the "preparation of defendable expense allocation".