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Avoidance & evasion
Wealthy individuals are shunning aggressive tax-shelter schemes after a string of negative headlines involving celebrity investors – but thousands of people from across the economic spectrum face an intense crackdown on tax dodging, experts have warned.
Times; Times
We’ve said it before, and we’ll say it again: the pendulum has swung far against avoidance, so HMRC are making the most of it and asking for a very wide range of powers. On the other hand, the reputational damage of being tagged as an avoider is now so strong that anyone with a reputation to lose is unlikely to be interested.
HMRC are “railroading” firms into paying unnecessary penalties, in a sign the government’s tough stance on tax collection could be excessive, according to accountancy firm UHY Hacker Young.
Telegraph
The Telegraph’s story is based on the system of automatic VAT penalties and the high percentage of cases that get overturned on “reasonable excuse”. UHY Hacker Young says nearly half the 17,200 cases appealed get overturned – which does not mean, as the newspaper report implies, that nearly half of all fines imposed incorrectly.
About £40bn of tax – comprising VAT, income tax, National Insurance and corporation tax – is evaded every year by companies in the UK, four times the official government estimate, according to research carried out by tax campaigner Richard Murphy and the Association for Accountancy and Business Affairs. HMRC have called the findings “seriously flawed”.
Times
HMRC are not the only people to have criticised Murphy’s research – which, if true, would mean companies were evading as much tax in total as they were paying in corporation tax. That seems inherently unlikely. By its criminal nature, it is extremely difficult to calculate an accurate figure for evaded tax.
Business
The public controversy sparked by so-called sweetheart deals between HMRC and big businesses has left companies struggling to resolve tax disputes, according to an Oxford university study, which highlighted tensions about the Revenue’s internal guidelines on settlement strategy that can bar officials from compromises.
Financial Times
“So-called” is the important point here: the deals were reviewed by a senior judge, Andrew Park, and found not not be “sweetheart”. The body of the FT’s story shows that the greater problem is with the Revenue’s litigation and settlement strategy rather than the fear of sweetheart deals, although the attention to process created by the latter is not always helpful in reaching a commonsense conclusion.
Income
More than 500,000 middle-class professionals are paying an income tax rate of 60% as the result of a little-understood policy introduced by the previous government, according to the Institute for Fiscal Studies think-tank.
Telegraph
Little-understood by journalists, that is; this is the effect of the withdrawal of personal allowances between £100k and £120k. The story came out of Paul Johnson’s CTA address, which had journalists desperately searching the HMRC website to find the 60% rate. There is little hope of simplification when complexity helps the government hide its stealth taxes so effectively.
More families are in debt to HMRC through no fault of their own, according to government data, which shows the proportion of tax credits overpaid soared last year. Private debt collectors are targeting more than 200,000 of the UK’s poorest people, after almost 27% of tax credits were overpaid by the Revenue in the financial year to 2013.
Independent
Overpayments are built into tax credits because of the delay between payment and the return going in. This is the problem that the universal credit is meant to solve, but quite why we need to go from an annual reconciliation to having real-time information is not clear. Monthly would surely be enough.
Inheritance tax
Widespread misconceptions about the status of overseas assets could land many UK families with large inheritance tax (IHT) bills, according to the results of a survey of financial advisers by investments group Skandia International.
Financial Times
Skandia’s research has shown that many people believe assets held outside the UK are not within the charge to IHT. Of course, that may have some truth in practice, if not in law… The research quotes 75% of advisers saying this is what their clients believe, a level of hearsay that should be treated with suspicion.
Investigations
The number of taxpayers investigated by HMRC doubled in one year, with the department making inquiries about the tax affairs of 237,215 people in 2012/13, compared with about 119,000 in the previous 12 months. The Revenue raised an extra £1bn tax in the past year by targeting middle class professionals including accountants and barristers. But the department has been accused by tax experts of using scare tactics by sending ‘nudge’ letters to people thought to have not paid enough tax.
Telegraph; Telegraph; Times; Financial Times
“Investigations” is the slippery word here. Is sending out a letter that generates people coming forward to declare tax that is due really “investigation”? Certainly, it is tax that should be paid, but does it mean that only those who can be easily frightened, or who have a conscience, are paying up?
Fraudsters who cheat the taxman face more than 15 years in jail under new guidelines to judges. The hugely increased penalties are the first on revenue fraud from the Sentencing Council watchdog, which recommends a span of three to 17 years depending on the severity of the offence, with the longest stretches handed out for cases involving more than £80m.
Times
Again, this is probably recognition of the hugely increased public opprobrium attaching to tax evasion.
HMRC are functioning in crisis mode, with thousands of calls left unanswered and investigators cherry-picking the easiest cases, according to a department whistleblower, a long-serving employee.
Times
It is hard to tie this news to the increase in investigations trumpeted by HMRC, but the answer is probably to do with picking the easier cases and not doing some of the detailed investigation work that used to take place. The record on phone calls, while certainly still not perfect, is showing an improvement over a few years ago.
Taxes will have to rise unless HMRC are given new powers to recover debts directly from taxpayers’ bank accounts, the prime minister, David Cameron, has said. The Revenue is also to be handed the ability to make people using tax avoidance schemes to pay tax upfront.
Telegraph; Telegraph
This is an issue we have covered in great length in Taxation, and will continue to do so. The executive summary is that we don’t like it.
