Last week HMRC published its ‘Fast Facts’ on its compliance activities and revealed that the department raised a record £23.9 billion in additional revenue in 2013/14. This was up by over £9 billion on the figure three years earlier.
The document sets out HMRC’s work on tackling avoidance, evasion and fraud and describes the department as ‘an effective, efficient and impartial tax and payments authority’. Impartial? Some Status Inspectors perhaps need reminding of this!
HMRC are prepared to wage war on those who persist in their pursuit of tax avoidance through artificial arrangements. The department tailor their approach according to risk and taxpayer behaviours, taking full advantage of new technology, intelligence and analytics. The Revenue’s data analysis system, ‘Connect’, enables the department to map an individual’s unique financial fingerprint and identify discrepancies between what they know and what the taxpayer is declaring. At a cost of £80 million in 2008, ‘Connect’ has helped HMRC to secure £3 billion of additional taxes.
Tackling tax avoidance is a priority for HMRC who are increasing the pressure on tax avoiders to close the £4 billion avoidance tax gap. The tax gap is the difference between what is due and what is collected.
Since March 2010 there have been 42 changes to tax law to close down avoidance loopholes and make strategic changes to prevent and deter tax avoidance.
In the last 4 years HMRC has won 94 tribunal and court cases involving avoidance, representing a 80% win ratio. In 2013/14 the department had 30 victories which protected £2.7 billion of revenue.
The crackdown on tax avoidance has resulted in a reduction of more than 75% of new marketed schemes registered under DOTAS (Disclosure of Tax Avoidance Schemes), In 2009/10 there were 116 schemes registered compared to 2013/14 when only 28 were registered.
Last year saw the introduction of GAAR to tackle abusive tax avoidance schemes that might otherwise succeed under existing legislation. In the next 4 tax years GAAR is expected to protect £235 million in revenues.
In 2011 legislation was enacted to stop employers using third party arrangements, such as trusts to avoid or defer income tax liabilities on rewards to employees or to avoid restrictions on tax reliefs. This was costing £750 million a year and by closing this loophole ensured that nearly £3.8 billion in tax revenues between 2011/12 – 2015/16 were protected.
HMRC’s tax avoidance juggernaut will continue to gain pace as future plans include:
New powers will give HMRC early warnings about new products and help identify high risk promoters.
New legislation will encourage taxpayers, involved in a scheme that has failed in other litigation. to settle with the Revenue. Where there has been a relevant judicial ruling, a taxpayer can face a penalty if they refuse to reach agreement with HMRC.
New powers will require certain taxpayers involved in marketed avoidance schemes to pay HMRC the tax in dispute upfront. This is expected to bring forward approx. £4.9 billion of tax in the next 5 tax years.
New powers will prevent employees and employment intermediaries using contrived contracts to escape PAYE and NIC