Earlier this week the union representing most HMRC staff claimed that tax evasion is costing more than £80bn a year, an estimate dismissed by HMRC. A chartered accountant has now warned that tax evasion among micro businesses in the UK is “rife”, and that politicians must address HMRC staff levels. But the department told AccountingWEB that its “drive against the cheats” benefited from excellent intelligence and dedicated staff.
Richard Murphy’s latest report for the PCS has reignited the tax gap debate, and Ed Miliband told the Labour Party conference yesterday that a Labour government would raise £1bn a year through tax avoidance measures as part of a £2.5bn package to fund a transformed NHS.
But Jolyon Maugham, a tax barrister and Labour Party supporter, noted that on personal tax avoidance “the heavy lifting is done”. On corporate tax avoidance, he said we must “await development and implementation of the OECD’s BEPS project”.
“The battleground is moving to evasion,” Maugham wrote on his blog yesterday. “On this front, I think the Conservatives’ record is less compelling. Tackling evasion is inevitably manpower heavy and I cannot see how HMRC’s capacity to close the tax gap in that field can have survived the significant cuts in HMRC staffing levels.”
Responding, Kendal-based chartered accountant Stuart Jones wrote: “I can only comment on the microbusiness sector but evasion is rife. A tax office in every large town meant that HMRC staff saw what was happening locally. Nowadays it’s open house for evading VAT, income tax and national insurance contributions (while at the same time overclaiming tax credits) by being part of the cash economy. Businesses never register with HMRC, companies are struck off without any objections from HMRC, the list is endless.”
Jones added: “Politicians must address HMRC staff levels immediately.”
He told AccountingWEB today that HMRC “has all the tools to tackle evasion, but doesn’t have the staff”.
PCS general secretary Mark Serwotka said in a foreword to Murphy’s report that tax evasion might cost the UK “£85bn a year”. The report examines areas that HMRC’s own estimate does not address, said Murphy, director of Tax Research UK.
A report that he published earlier this year suggested that “up to 10%” of UK sales income may not be recorded. In 2011/12 this was likely to have represented £100bn of unrecorded sales income in the “shadow economy”, he said. Unrecorded tax of “maybe £40bn” may have gone unpaid.
In addition, HMRC had estimated almost £12bn of revenue losses for criminal attacks, error and failure to take reasonable care. Murphy estimated “further tax gaps” amounting to more than £21bn in relation to “fraud and other crime, capital gains tax and inheritance tax under-declaration, and offshore tax evasion”. His estimate of the total “tax evasion gap” for 2011/12 was £73bn.
HMRC’s estimate of the tax gap for that year, published last October, attributed revenue losses of £22bn to error (£2.9bn), failure to take reasonable care (£4.3bn), evasion (£5.1bn), the hidden economy (£5.4bn) and organised criminal attack (4.7bn). The total tax gap was put at £35bn.
An HMRC spokesperson told AccountingWEB yesterday that the PCS tax gap estimate was “over-inflated, flawed and muddled”, and that the department would “continue to exert maximum downward pressure on the tax gap”.
Tax professionals backed the coalition government’s decision in 2010 to earmark £900m over the spending review period to tackle avoidance and evasion. The Chartered Institute of Taxation welcomed “an increased emphasis” on evasion.
“Tax evasion is a much bigger issue than tax avoidance,” Murphy wrote today. “In that case why isn’t it being tackled? What is the problem in saying tax evaders are cheats? And that they undermine the NHS? And education? And pensions?”
“Tax evasion makes up £5bn of the total tax gap of £35bn,” HMRC said.
A spokesperson added: “Effectively tackling evasion requires excellent intelligence, sound risk analysis, resource flexibility, and dedicated staff. Our drive against the cheats enjoys all these things.
“Since 2010 our drive against tax dodgers has helped deliver around £60bn of additional tax to the exchequer. Last year alone we brought in over £23bn from compliance work.
“Specific programmes such as our Managing Serious Defaulters project subjects identified rule breakers to increased scrutiny, and makes public some of the worst offenders.”