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Q. It seems that HM Revenue & Customs are currently announcing a new initiative to tackle tax evasion every month at the moment. Are these actually effective or are they merely high profile “scare tactics”?
A. Since 2010, HMRC has started to use “taskforces” targeting a broad range of different business sectors from doctors and dentists, plumbers and electricians, restaurant owners through to landlords, to name just a few.
The taskforces are part of the £917m funding which was ring-fenced in 2010 from the government spending review in order to tackle tax evasion, avoidance and fraud from 2011/2012. The target is aimed at raising an additional £7bn each year by 2014/2015.
HMRC has stated that it considers this to be a smart use of resources and a wise way to spend the allocated funds. Many accountants and tax advisers broadly agree with HMRC’s statement but there is certain doubt as to whether returns from the campaigns are worth the effort. Some accountants, however, think that a general tax amnesty could potentially recoup more tax.
More than 20 targeted taskforces have been launched since the beginning of 2011 with HMRC planning a further 30 more during 2012/2013.
Each specialist team will do intense research and tax investigations to uncover businesses which owe the government tax.
HMRC said that it has raised more than £500m to date from taskforces over the past five years (including “offshore disclosure facilities”) but this figure does not reflect the results of the latest round of taskforces that have been announced in the last 12 months.
While the £500m recouped to date may sound impressive, it only accounts for approximately 2 per cent of the total estimated £35bn tax gap - the difference between the tax that the HMRC thinks should be collected and the amount which has actually been collected. Some professionals dispute this figure and think that the tax gap could, in actual fact, be much higher than HMRC’s estimate. The amount of tax each taskforce collects varies but, to date, it has been typically between £2m and £15m.
So far the taskforces, which use software to help inspectors track down tax evaders, are aimed at parts of the economy where HMRC has evidence of tax evasion. People who approach HMRC at the start of each targeted taskforce and make voluntary disclosures about their financial affairs along with any undeclared income typically receive more lenient treatment.
As part of the current initiatives to tackle evasion and avoidance, HMRC has also used tax amnesties and criminal and civil prosecutions. Offshore tax amnesties, such as the Liechtenstein Disclosure Facility, and a deal made with the Swiss government to tax money held by British citizens in “secret” Swiss bank accounts are expected to raise billions and are considered by most professional advisers as having been a great success.