BRITAIN'S big accountancy firms are using insider knowledge gained from staff seconded to the Treasury to help leading companies and wealthy individuals avoid paying UK taxes, MPs have warned.

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

Chairwoman Margaret Hodge said the practice was a ridiculous conflict of interest which should be banned.

She said the large accountancy firms were in a powerful position in the tax world and had an "unhealthily cosy relationship with government".

Ms Hodge added: "They second staff to the Treasury to advise on formulating tax legislation.

"When those staff return to their firms, they have the very inside knowledge and insight to be able to identify loopholes in the new legislation and advise their clients on how to take advantage of them.

"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 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 pointed out how HMRC had far fewer resources than the big four firms, which employed almost 9000 staff and earned £2 billion a year from their tax work in the UK.

On the committee's concerns over the seconding of staff to the Treasury, the committee said: "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 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".

The MPs said it was inappropriate for individuals from firms to advise on tax law and then devise ways to avoid the tax.

"We are ... very concerned by the way that the four firms appear to use their insider knowledge of legislation to sell clients advice on how to use those rules to pay less tax."

A spokesman for HMRC responded by saying the facts showed it was not only aggressively fighting battles against tax avoidance but also winning them.

He said since it has won 11 tax tribunal cases against avoidance schemes, two of which were against large corporate organisations, since late 2012.

It has also litigated more than 50 major avoidance cases, protecting billions of pounds of tax in the process since 2010.

The HMRC added that its transfer pricing investigations generated more than £4bn in extra tax revenues over the last four years.

The spokesman added: "Backing HMRC's success, last year the Government announced further investment of £77 million to expand our anti-avoidance and evasion work.

"Much of this will be used to accelerate our challenges to multinationals' transfer pricing arrangements and is expected to bring in an additional £2bn over the next five years."