Nicky Morgan, chair of the Treasury committee, said: ‘HMRC collected around £124bn in VAT last year – over a fifth of the UK’s total tax take – and failed to collect around £12.6bn in VAT. The reasons for why VAT is so vulnerable are somewhat opaque, so the committee will examine how this might be addressed.

‘Brexit may provide both opportunities and challenges to the UK’s approach to VAT. The government may choose to stick to a broadly similar structure to what currently exists, change it, or abolish it completely.

‘We’ll examine the chief concerns for HMRC and businesses going forward, and what impact Brexit will have on HMRC’s efforts to reduce the VAT element of the tax gap.’

The committee is inviting written submission addressing any of a number of questions. They include the root causes of the VAT gap; ways to target HMRC’s compliance strategy for VAT; whether online trading and the ‘gig’ economy require a new approach to VAT compliance; and where the vulnerabilities lie in the current VAT rules.

MPs will consider whether HMRC’s approach to large, medium-sized and small businesses is appropriate for the nature of the risk to the VAT element of the tax base that each sector poses. They will also look at the role advisers play in encouraging or facilitating aggressive VAT planning arrangements, and consider whether businesses, tax advisers and professional bodies have concerns about the nature of the advice given by some practitioners.

The inquiry will examine which aspects of VAT (either process or design) cause the biggest problems for businesses, and whether Making Tax Digital will reduce error and significantly improve the collection of VAT. It will also look at the process for resolving disputes between HMRC and a business about how much VAT is due to assess if works quickly and fairly.

In parallel, the Treasury sub-committee is launching two inquires, one covering tax avoidance and evasion, and the other looking at the conduct of tax enquiries and the resolution of tax disputes.

John Mann, chair of the Treasury sub-committee, said: ‘Tax avoidance and evasion remain matters of serious public concern. HMRC has been given additional funds in recent years to address the issue, yet the tax gap for avoidance and evasion is still billions of pounds.

‘The sub-committee will look into how well HMRC has used these additional funds to close the tax gap, whether its strategy to reduce avoidance and offshore evasion has worked, and whether HMRC’s resources are sufficient.

‘We’ll be pressing those who seek out loopholes to get out of paying tax and the organisations that help them to give answers to Parliament about the revenue that we are all losing out on.’

As part of this inquiry, MPs will look at avoidance and evasion in the UK’s crown dependencies and overseas territories.

The second inquiry will assess whether HMRC’s approach to conducting tax enquiries, resolving tax disputes, and determining the amount of tax to be paid meets the standards set out in its code of governance. It will also look at the question of so-called ‘sweetheart deals’ with large companies. The deadline for submission to all three inquiries is 31 May.

Details of the Treasury committee VAT inquiry are here.

Report by Pat Sweet