Funding for tax investigations could bring in billions of extra revenue for government
In last week’s Spring Statement, the Chancellor announced a funding and resource boost for HMRC to help tackle tax non-compliance.
Rishi Sunak said the government will invest £161 million over the next five years to “increase compliance and debt management capacity in HMRC.”
The move is forecast to bring in more than £3 billion in additional tax revenue for the Treasury, according to the Spring Statement document.
Sunak explained: “By funding additional HMRC staff to provide greater support to taxpayers seeking to pay off accrued tax debts, and to tackle the most complex tax risks, ensuring large and mid-sized businesses pay the tax they owe.”
Investment coincides with end of IR35 reform’s ‘soft landing’
According to research by law firm Pinsent Masons, tax investigations into large businesses brought in £69 extra per pound spent on staff costs to carry it out. That’s a staggering 6,800 per cent return on investment for the Treasury.
Wealthy and medium-sized businesses brought in an additional £29 per pound spent while self-employed individuals and small businesses brought in an extra £11 per pound spent.
Matt Fryer, head of legal services at Brookson Legal said the investment coincides with the end of IR35 reform’s ‘soft landing’, which will see HMRC able to issue penalties (in addition to tax bills) to private sector businesses for non-compliance.
IR35 reform allows HMRC to be more ‘effective’ in ensuring compliance
“A majority of this resource is expected to be focused on the new rules and end-hirers, as HMRC can recoup more tax from an end-hirer than an individual contractor.
“This is, in part, why the IR35 rules changed and transferred compliance upstream to the end-hirer: to help HMRC be more efficient and effective in its compliance activity.”
Tax compliance would be cheaper to enforce if rules were simpler
Andy Chamberlain, director of policy at self-employment trade body, IPSE, echoed what Fryer said, adding that it would also help if the off-payroll rules were not so complex.
“It is right that HMRC should ensure taxpayers are complying with legislation and we do not object to the additional funding it received at the Budget to achieve that aim,” he said.
“There is, though, a value for money question here. Tax legislation would be easier to comply with and, therefore, cheaper to enforce, if the rules were simpler to understand.
Complexity of IR35 makes it ‘extraordinarily difficult to enforce’
“The off-payroll legislation, for example, is so complex that compliance is extremely difficult and costly for businesses.
“At the same time, it is extraordinarily difficult to enforce and HMRC often come away from an investigation that has taken several years, with nothing to show for it,” Chamberlain said.