Let’s start with shifting money out of the UK, then not paying tax on overseas investment income. That’s tax evasion. It’s criminal. At the end of last week, at an IMF event in Washington when the UK Parliament had already adjourned for Easter, the UK Chancellor of the Exchequer announced his intention to make it easier to secure convictions in these situations.
Instead of having to prove intent to evade tax, the Government plans to change the law so that it will only be necessary for HMRC to establish the money has been moved abroad and that UK taxes have not been paid.
HMRC estimates that this will produce a 10-fold increase in the number of prosecutions for tax evasion (the 2014/15 target for prosecutions is already 1,174).
Shock impact
While a PR-savvy Treasury may be promoting this to achieve a shock impact and encourage voluntary disclosure by the wealthy individuals concerned, there is profound concern that reducing the burden of proof in this way is another step on a slippery slope which has already seen attempts by the Government to restrict the circumstances in which judicial reviews can take place.
In the document published this week, HMRC emphasises that its access to big data (more than 1.5 million lines of data are already received every year on offshore savings) dramatically boosts its chances of catching up with tax evaders who are trying to stay ahead of the taxman. In a related announcement, HMRC also revealed that it had received the first set of data from the Merchant Acquirers. This will, in theory, allow it to match debit and credit card transactions against taxpayer records to identify people who fail to report, or deliberately under-report, their business income.
But there is a problem: big data does not equate with big success.
For example, as David Heaton points out below, there are still problems with PAYE Real Time Information and with the Government Gateway which is used for all taxpayers’ dealings with HMRC. Although HMRC maintains that there is no problem on its side and that all the issues are the problem of taxpayers and their advisers, this is far from the truth.
For example, the failure of the Government Gateway last weekend meant that untold thousands of data entries were “timed out”.
Unexpected consequences
Despite HMRC assurances that penalties will not follow, on another occasion 400,000 emails were sent to people telling them that they had not filed the necessary returns. All of these emails were incorrect: the returns had been filed. If HMRC – like so many corporations – is struggling to use big data effectively in its day-to-day operations, it must take even more care in the way it uses this data for “special projects”.
While much is made of the tax loss caused by a relatively small number of tax evaders and avoiders (individuals and businesses alike), HMRC owes it to the overwhelming majority of honest taxpayers to get the basic administration of the tax system right before it focuses on causing deliberate disruption for those who engage in dubious tax behaviours.
Over the centuries, Chancellors of the Exchequer have used the tax system to encourage or deter particular behaviours. Sometimes they get it right: saving for retirement, charitable giving, business expenditure to create jobs are just a few examples. On the other side of the coin, the unexpected consequences of hasty tax changes may cause business failures.
Nevertheless it’s good to see the Chancellor recognising that some taxes should be permanently reduced to boost the economy. Fuel duty and corporation tax are the two he has in mind. In any jurisdiction, of course, single taxes cannot be considered in isolation. Until specific tax reductions can provide the stimulus which the Chancellor is seeking, he must either increase other taxes, spend less or borrow more.
By announcing a permanent reduction in fuel duty now, the Chancellor clearly has an eye on a political dividend in the May 2015 general election. And here we get to the heart of the matter: HMRC works best if its online filing means it has almost nothing to do with the overwhelming majority of taxpayers. That then leaves HMRC free to concentrate on the most complex individual and corporate taxpayers, and also tax avoiders and tax evaders. That’s a gamble for the Chancellor. If it pays off, the electoral dividend will increase.
If it does not – perhaps because of demonstrable unfairness following numerous tilts of the playing field in favour of HMRC – then it will backfire badly.
George Bull is a senior tax partner at Baker Tilly
