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Sleaze, corruption and HMRC - more help is needed

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The scale of fraud around Covid schemes is enormous but HMRC is barely scratching the surface.

10th Nov 2021
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When asked to create a radical Fantasy Budget, one of this columnist’s first thoughts was that most proposals were likely to be controversial.

Even so, it was a pleasure to discover the occasional topic on which almost every accountant could agree.

Top of the table came the billions of pounds that have escaped HMRC and the Treasury as a result of errors, collection failures and, perhaps most pertinently, fraud.

Ignoring corruption in high places, it is hard to see why no serious action has been set in train. In particular, the government should immediately reverse the decades of cuts to HMRC staffing which has destroyed the morale of those few who are left.

HMRC needs more resources to chase fraudsters

It is generally recognised that employing more HMRC investigators repays the investment by a multiple of at least three and quite possibly much more. Therefore, many might struggle to understand why such an obvious step has been ignored for year after year.

If that wasn’t clear enough already, then HMRC’s annual report is damning.

Forget about the tax gap with which we are all familiar. Shockingly, our taxing authorities estimate that 8.7% of the money paid out under the Coronavirus Job Retention (furlough) Scheme, 8.5% of the incredibly misjudged Eat out to Spread Coronavirus PR Scam last August and 2.5% of the Self-Employment Income Support Scheme (SEISS) have been lost to fraud.

In monetary terms, this means that fraudsters have been allowed to get away with well over £5 billion on the furlough scheme alone, plus some relatively small change in the other schemes – about £0.5 billion on SEIS and £70 million on cheap meals.

To be clear, this is not the amount that was wasted as a result of bad policy decisions, just the consequence of fraud.

This should be a national outrage, were the government not so embroiled in several other national outrages that are making bigger headlines, even if they are less costly.

The authorities are trying to put a brave face on things. According to a newspaper report, the Treasury has clawed back £98 million from fraudulent or erroneous Covid claims.

Its spokesperson additionally cites a number of examples of successful investigations, netting no more than a few hundred thousand pounds each. No one can deny that this is good news but it is a mere drop in a very large ocean.

A national scandal

Banging this drum can get repetitive but surely the need for a change of approach is blindingly obvious, at a time when hopefully there could be many well-qualified people looking for jobs. Putting a few hundred million pounds into a project to beef up HMRC’s investigative powers and crackdown on the fraudsters would pay absolutely massive dividends so why didn’t the Chancellor take action?

Even better, once this project was complete, there is much else that the new recruits could tackle, for example all of the wrongdoing exposed by the Paragon Papers and its predecessors, not to mention other examples of tax evasion and abusive avoidance that always seem to evade serious investigation.

These failures really should be regarded as a national scandal and those responsible forced to explain why they seem perfectly happy to let fraudsters laugh all the way to the bank.

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By mumpin
10th Nov 2021 19:17

"It is generally recognised that employing more HMRC investigators repays the investment by a multiple of at least three and quite possibly much more. Therefore, many might struggle to understand why such an obvious step has been ignored for year after year."

Experience is everything in tax and Vat inspectors and I think that moving in this direction now might not become cash positive for 5 or 10 years.
Limited liability and no minimum requirement for share capital (or an HMRC bond) is the elephant in the room.
I'm disappointed that HMRC squeeze the pips out of the traders who have registered for taxes and are trying to comply whilst ignoring those who don't even register and walk away from a limited company after 2 years paying nothing.

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By ireallyshouldknowthisbut
11th Nov 2021 10:03

The reality is the average business person can go their ENTIRE business life without so much as a cursory check by the tax man. Indeed several business lives.

With little fear of scrutiny, many will start to push the boundaries. And then step over them, rush through and completely ignore them.

HMRC is relying almost entirely on the tax payer being honest. Once it is clear the dishonest are getting away with it, dishonestly starts to slowly seep through the system until 'getting away with it' becomes the game not a proper assessment of taxes due. This is endemic in many tax systems.

HMRC need high calibre tax inspectors who strike fear into tax professionals, not the current system where the average inspector is very green and even I with my limited tax knowledge can run rings around them in the rare event we have to cross swords.

"The fear" is really important as it keep tax payers and agents honest.

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