PAC's Margaret Hodge: HMRC's £35bn Tax Avoidance Gap 'Tip of Iceberg'

HMRC's £35bn tax gap estimate is only the "tip of the iceberg", according to the leader of an influential parliamentary committee.

Margaret Hodge MP, chairwoman of parliament's public accounts committee (PAC), made the comment as she cast doubt over the tax office guess at just how much taxation is lost through avoidance, evasion and non-payment.

Hodge, along with the PAC, was grilling HMRC bosses on how they calculate the annual tax gap. She took issue that HMRC does not include the likes of Google, Amazon and Starbucks - all accused of tax avoidance, but who say they stick by the rules - in its tax gap estimate.

Those HMRC bosses facing the committee were Edward Troup, tax assurance commissioner; Jim Harra, director general business tax; and Jennie Granger, director general enforcement and compliance.

Troup said HMRC could not guess at how much tax would be owed by those who use legal means of avoidance and they can only collect the tax that the law allows them to.

Hodge was also furious at how few prosecutions had been brought against the big corporations accused of dodging tax. She said HMRC, even if it is not certain it will be successful in such a prosecution, must seek to test and so define the law through the courts.

However, Troup and Harra said they always investigate situations where evidence suggests there may be the avoidance or evasion of tax and would, if they saw it necessary, bring a prosecution. Both refused to speak about individual taxpaying firms or individuals.

Hodge and the PAC have previously attacked HMRC over its pursual of tax revenues.

She accused HMRC of having an "unhealthily cosy relationship" with the big four accountancy firms, known for their work in helping clients avoid tax.

"They second staff to the Treasury to advise on formulating tax legislation. When those staff return to their firms, they have very inside knowledge and insights to be able to identify loopholes in the new legislation and advise their clients on how to take advantage of them. The poacher, turned gamekeeper for a time, returns to poaching," she said.

"This is a ridiculous conflict of interest which should be banned in a code of conduct for tax advisers, as we have recommended to the Treasury and HMRC."

The PAC has also attacked Google and demanded that HMRC investigate its claims to generate no sales in the UK. A whistleblower claimed that salespeople were working in the UK, but processing the revenue through Google's Irish subsidiary to avoid the UK taxman and instead benefit from a more favourable corporation tax rate in Ireland.