In his March 2019 Spring Statement, Chancellor Philip Hammond said: “Since 2010, the government has secured and protected over £200 billion of tax that would otherwise have gone unpaid, introduced over 100 measures to reduce avoidance, evasion and other forms of noncompliance, and continued to support taxpayers to get their tax right.”
He continued to announce the publication of two concurrent policy papers from HMRC:
- “Tackling tax avoidance, evasion and other forms of non-compliance”
- “Offshore tax compliance strategy: No Safe Havens 2019”
These set out the government’s achievements in these areas to date and how they are going to continue this success into the future.
What is the ‘tax gap’?
The ‘tax gap’ referred to in these policy papers is the gap between how much tax people should be paying and the amount actually collected by HMRC. Currently, there is a discrepancy of £33bn due to non compliance, tax evasion and tax avoidance.
What causes the largest tax losses?
£5.9bn is missing from the Treasury’s bank account because of taxpayers’ “failure to take reasonable care” when dealing with their tax position. This is the largest cause of tax lost to the Treasury. Deliberate tax evasion accounts for £5.3bn of the tax gap. Small businesses are the sector with the most missing tax, currently worth £13.7bn.
HMRC said: “In most cases, these individuals and businesses, the government, and HMRC are all trying to achieve the same goal: to get their tax right. Because the most common problems HMRC finds with these taxpayers are errors and carelessness, HMRC’s focus is to help make and keep tax compliance as straightforward as possible.”
What will help to solve this problem of “reasonable care”?
It is widely accepted that a simplification of our tax system will improve the taxpayers’ ability to be accurate in their reporting and filing to HMRC. They think that: “The digital transformation of the tax system, including the changes to Making Tax Digital …helps achieve this.” HMRC are fully committed to the success of the Making Tax Digital programme and believe it will net an additional £1.2bn in tax because it will be easier to get things right.
What about mega rich people with dodgy accountants?
The idea of hugely wealthy people paying dubious professionals to hide money or otherwise scam HMRC is a popular scapegoat for the tax gap. But unpaid tax from ‘wealthy individuals’ only makes up £3.4bn of the total.
HMRC are very clear that they use “…strong data and intelligence-led activity to identify risks in the wider wealthy population.” They have no intention of not pursuing the tax owed, just because it is a smaller percentage of the overall total. “HMRC will take direct action against those who deliberately get it wrong, collecting tax up-front from avoidance schemes, and litigating disputes over the tax due. In 2017-18, across all HMRC activities, investigations into the wealthy secured additional tax revenues of over £1bn.”
Don’t people just hide their money abroad?
Yes, some people attempt to use international systems to avoid paying tax in the UK, or any other country. That’s what the “Offshore tax compliance strategy: No Safe Havens 2019” policy is designed to tackle. Obviously, this is complicated by having to work at an international level with other countries.
HMRC report that they have the offshore financial information of 5.67million UK residents. They are “currently actively pursuing a number of enablers suspected of facilitating cross-border tax fraud and money laundering through the J5 alliance (partnership with Canada, the Netherlands, the United States and Australia).”
HMRC’s statement about the consequences of being caught participating in UK tax avoidance is very strong: “We will relentlessly pursue enablers using the new penalty regime for anyone who designs, sells, or otherwise enables the use of a tax avoidance arrangement which HMRC later defeats. Similarly, we will impose new civil penalties on those who deliberately enable another person’s offshore evasion or non-compliance.” As it should be.