Q: There has been a lot of publicity in recent months with regards to HM Revenue & Customs targeting tax avoidance schemes. How effective has it been from this point of view, and has it increased its enquiry activity targeted at taxpayers who have not used these schemes?
A: HMRC released its Compliance Update paper entitled Levelling the Playing Field back in March 2013. With the government investing £1bn through the course of this parliament to enable UK’s tax authority to secure £22bn a year in compliance revenues by 2014-15, the paper laid out exactly how HMRC intended to use its increased resources to achieve this target.
More than one year on, and HMRC’s recently published figures show that it achieved a record £23.9bn of additional tax in 2013/14, an increase of £3.2bn on the previous year and £9bn more than three years ago.
The publicity around this announcement has focused on the progress made targeting tax avoidance schemes, criminals and large businesses, with HMRC confirming that more than £8bn has been secured from large businesses, £1bn from criminals and £2.7bn from tackling tax avoidance schemes in the court.
The number of notified tax avoidance schemes has reduced by almost 75 per cent, with 116 schemes notified to HMRC in 2009/10 and just 28 in 2013/14. During the period, legislation has been introduced to protect the exchequer from future tax avoidance through the introduction of their General Anti Abuse Rules and more targeted legislation aimed at closing corporation tax and stamp duty land tax loopholes.
Moving forwards, HMRC intends to use new powers to identify and target promoters of tax avoidance schemes earlier. New legislation will encourage scheme users to settle faster, once a scheme has been shown to fail in other litigation. Meanwhile, through its accelerated payment scheme, it will look to recover tax up front where a tax avoidance scheme is in dispute.
Therefore, the short answer is that HMRC’s approach in this respect has undoubtedly been successful. However, the figures outlined above do leave £12.2bn of additional tax unaccounted for and HMRC rarely mentions additional taxes collected from general compliance activity targeted at SMEs and individuals who have not been involved in avoidance or evasion.
From this point of view, in recent years there has been a significant increase in the number of enquiries, particularly those targeted at self-employed individuals, with HMRC using data obtained from third parties to target bank interest, rental income and capital gains. Against this backdrop, it really is important to make a full and accurate disclosure to HMRC, regardless of your circumstances.
Ben Chapin is managing director of Taxwise
