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pounds in the sink | accountingweb | Is the Treasury facilitating tax evasion
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Billions in tax revenues going to waste

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Each year billions of tax goes uncollected, despite the funds being much needed. Surely HMRC’s investigative activities should be beefed up instead of cut back, says Philip Fisher.  

22nd Feb 2024
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Nobody can be in any doubt as to the fact that the Treasury would be very much richer if it collected a greater proportion of tax that is due.

There will undoubtedly be debates about the exact number but even HMRC estimates that £36bn is going begging each year, disappearing into that black hole known as the Tax Gap. According to their data, this represents approximately 5% of all tax revenues that are due.

Readers will instantly realise that such musings are in danger of going over old ground but a recently released report from the Bureau of Investigative Journalism (“the Bureau”), a body set up to “expose injustice and spark change” has shed further light on the problem.

The headline says it all: HMRC fraud teams civil inquiries fall by half over five years. Even HMRC has not got the audacity to suggest that fraud has been cut by in half over that period.

It doesn’t take a mathematical genius to work out that if the number of civil inquiries has halved, the number of investigations reduced by two-thirds and no company has been charged in the seven years since a law was enacted to clamp down on corporate tax evasion, the tax service has a serious problem and so does the country.

When you think about it, this is quite bizarre. Jeremy Hunt is desperate to find the finances to fund a tax giveaway in next month’s budget, while Rachel Reeves would like nothing better than to plunge £28bn a year into a green energy programme that is fast disappearing down the drain.

Beef up HMRC

Why implement cuts to services that have already been denuded to the point where they are no longer serving or introduce new stealth taxes when all you have to do is beef up HMRC rather than beating it up?

The figures revealed by the Bureau are stark. In 2018/19, HMRC’s fraud investigation service opened 37,273 “risks” – preliminary inquiries into suspected error or false declaration. By 2022/23, the equivalent figure was just 21,338.

The number of civil cases in the same period fell from 17,424 to 12,585.

Finally, the civil cases opened by HMRC’s fraud unit investigating offshore, corporate and wealthy taxpayers have reduced by 56% in the past five years. Arguably, this is the most shocking statistic of all, since it is the area where you should expect the largest returns, in many cases for minimal effort.

All logic suggests that the figures should actually have increased substantially in each case. That is because there will be a bigger backlog of inquiries given that far fewer than expected have been launched in each of the intervening years.

Calls to collect

That scourge of HMRC, Dame Margaret Hodge MP has responded by demanding that HMRC “finally crack down on egregious tax avoidance and collect the revenues we desperately need”.

She is far from alone, since the Bureau’s article includes quotes from other interested parties such as King’s College London’s senior lecturer in corporate law Stephen Daly stating what should be blindingly obvious to everybody except HMRC bigwigs and politicians “If you don’t enforce the rules, then you create a culture in which people don’t have to worry about the tax returns later being checked.”

Put into simple English, he is echoing warnings on AccountingWEB over a number of years that the average taxpayer can (let’s be polite here) make mistakes in their own favour with alacrity, while those interested in more serious avoidance and evasion schemes will play the odds and assume that they are unlikely to be caught for decades, if at all.

Time for intervention

In its own defence, HMRC was keen to point out that 300,000 interventions opened in 2022/23 and that it had recouped £136bn from compliance interventions in the past five years, which is undoubtedly commendable.

If any readers can help by defining what constitutes an intervention, that will be helpful. It presumably does not include nudge letters but nor would it be limited to what, in the old days, would be referred to as investigations.

Finally, the Bureau reminded us that last year the House of Commons public accounts committee confirmed HMRC recovers £18 in additional tax revenue for every £1 spent on compliance, concluding: “The government is missing the opportunity to recover billions in lost revenue by not resourcing compliance.”

In passing, readers might be amused to know that those last words were originally typed by my software as “resorting to violence”. Perhaps that is the solution?

Replies (6)

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By Rob Swan
23rd Feb 2024 09:14

Quelle suprise!
What's more, MTD is supposed to improve tax collection! Just more waste (already estimated to cost SIX!! times original estimate, as per Amy Chin's article: https://www.accountingweb.co.uk/tax/hmrc-policy/hmrc-digs-heels-in-and-c... , and lacking clear objectives!!!
(I'll splutter the rest of my coffee in private.)

Thanks (0)
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By petestar1969
23rd Feb 2024 12:09

I like Margaret Hodge, but her point about egregious tax avoidance will take too long and cost too much.

A crack down, via public shaming such as TV adverts, on the cash in hand merchants I see all the time who want me to help them blag the taxman is needed. I remember a TV campaign years ago aimed at shaming cash-in handers in the building trade.

If they did this the benefits bill would also fall....

Thanks (2)
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By petestar1969
23rd Feb 2024 12:31

Further to my earlier post, there also needs to be education amongst accountants to basically tell them to f*** off any clients who are on the blag....

That might take a bit longer....

Thanks (1)
the sea otter
By memyself-eye
25th Feb 2024 10:49

Doesn't help that even when a suspicious report is submitted, nothing happens! I once submitted one about a client that made an unreported capital gain on a second house, never bothered again.

Thanks (1)
Replying to memyself-eye:
paddle steamer
By DJKL
27th Feb 2024 10:33

That is because the SAR process is a nonsense, it is too broad in scope so the bigger issue client reports go unnoticed in the flow of reports. They need to have different reporting processes by accountants in bands re their estimated scale of issue, in effect reports flagged by accountant re how serious they believe the issue they are reporting really could be.(Red/Amber/Green)

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paddle steamer
By DJKL
27th Feb 2024 10:39

When I fully retire I will take on some HMRC enquiry work for them if they pay me a decent percentage of the settlement. Say I do all the accounts analysis work/mark ups/ lifestyle investigation etc (I always liked defending these) and their staff do the rest, the correspondence, the legally bits- for this I get 30% of the take.

Of course any payments HMRC make to me under this programme need to be non taxable as I am fed up with HR tax and have no intention paying it in retirement.

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