Annual accounts show low investment in preventing tax avoidance, despite increased prevalence of the issue
HMRC has drawn criticism for spending just 6.5% of its budget on tackling tax avoidance, in a disclosure that contrasts sharply with its “draconian” approach to the Loan Charge.
Revealed in its 2022/23 annual accounts, the figure suggests that HMRC has failed to prioritise anti-avoidance activity.
With a total expenditure of £6.9bn, the amount spent on addressing “specific areas of tax evasion, avoidance and non-compliance” in 2022/23 was just £451m.
This is less than the amount HMRC spent on “transforming and modernising” its own IT systems over the same period, at a cost of £539m.
Despite this, the Chief Finance Officer at HMRC, Justin Holliday, states in his foreword to the document that “our compliance work offers good value for money”. According to Holliday, compliance activity “returns, on average, £18 for every £1 of expenditure”.
The claim will likely raise questions about how much more revenue HMRC could generate if it chose to dedicate a greater proportion of its budget to policing non-compliance.
It will also raise the eyebrows of those caught up in the Loan Charge Scandal, and other self-employed workers who remain at risk of tax avoidance.
HMRC must shift its focus on to promoters
The Loan Charge was introduced to recover taxes from participants of disguised remuneration schemes. Many self-employed workers who operated via these schemes did so unknowingly. HMRC has received heavy criticism over the policy, which sees tax liability collected from workers rather than scheme operators.
A cross-party group of MPs has been established to lobby the government for change – the Loan Charge & Taxpayer Fairness All-Party Parliamentary Group (APPG) – which has recently expressed concerns about the impact of the policy.
As a result, the government is under pressure to change its approach. Critics want to see a greater focus on tackling avoidance and its promoters, rather than its victims.
Greater investment is “a no-brainer”
Julia Kermode, CEO of PayePass, said HMRC’s accounts “show that more needs to be invested in putting a stop to tax avoidance schemes”.
While compliance activity represented just 6.5% of HMRC’s total expenditure in 2022/23, the annual accounts suggest that this generated £34bn in additional tax revenue as a result. This is about 5% of the total revenue raised by HMRC that year.
“The return on investment from preventing tax avoidance is huge,” she continued. “The resulting income would more than cover the costs of doing so – it’s a no-brainer”.
Instead, the current level of investment results in “billions slipping through HMRC’s fingers” and “raises questions over how seriously the government is taking this issue”.
“What’s more, along with damaging the economy, these schemes cause devastation to thousands of workers,” Kermode continued.
A lack of “proper enforcement” led the government to introduce “its draconian Loan Charge policy, which has had disastrous consequences on tens of thousands of innocent people”.
Kermode also suggested that today’s self-employed workers are let down by HMRC’s failure to police compliance. Tax avoidance schemes “lure in” unsuspecting workers “under the pretence that they are fully compliant umbrella companies”.
This is another failure on HMRC’s part, which has recently demonstrated its inconsistent approach to “naming and shaming tax avoidance schemes”.
Similarly, Kermode believes that the 31 schemes that HMRC has identified and named are just “a drop in the ocean”, calling on the tax authority to do more to protect the self-employed.