Tax avoidance, evasion and wealth

Corbyn has identified it is those dastardly wealthy people and corporates that don’t pay enough taxes. In the next breath he states that “As much as £120bn was not collected by the Treasury due to uncollected tax debts, tax avoidance and tax evasion”. HMRC are however collecting lots of new ka-ching pursuant to initiatives set out in the 2010 to 2015 policy paper on tax avoidance and evasion . The paper got a slight face lift in May this year. We thought it might be useful to recap on the measures HMRC are taking because policy has become reality.

As a side, Corbyn appears hopeful that the current Government can change the deficit position, eliminating it by 2020, allowing Labour (assuming they get in) to “no longer borrow for day-to-day spending, but…still borrow for investment”. Suggestions appear to be that he would follow in similar footsteps to Mr Blair and Mr Brown: I wonder after his time in leadership whether Mr and Mrs B will share their extensive knowledge of legitimate tax planning.

The policy document goes some way to explaining the difference between avoidance and evasion in only a way a politician could:

“Tax avoidance is bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage. It involves operating within the letter – but not the spirit – of the law. Tax evasion is when people or businesses deliberately do not pay the taxes that they owe and it is illegal.”

One could pontificate over whether rules are bent or simply badly written as well as whether Parliament actually know what they intend. Regardless of the chit chat in Parliament, the policy paper is quite unique in that it broadly sets out every measure HMRC are taking and intend to take to counter whatever they or Parliament consider tax avoidance and evasion. The measures are as follows:

1. Settlement opportunities: This is where HMRC say, we don’t think something works or you may have done something naughty, we will challenge you or you could pay us tax (or we could bankrupt you). HMRC has raised £610 million from voluntary disclosures. It is also reported that £395 million has been raised from post campaign activities (presumably enquiries etc.). It does demonstrate that HMRC are gearing up to pursue those not entering the campaigns.
2. More prosecutions: Gone are the days of high profile cases and those against the rich and famous (they will still occur although maybe politicians are squeaky clean). The policy is now to ensure everyone is aware it could be them – maybe a campaign similar to the National Lottery would work “It could be YOU”. HMRC have allocated more resources to criminal investigation in the hopes of increasing the pace and number of prosecutions. Local task forces have been set up (normally looking at specific sectors) to carry out investigations with the view of prosecuting. There are a reported additional 200 criminal investigators and the growth of prosecutions from 2010/11 to 2014/15 is seven fold.
3. Multinational corporations – base erosion and profit shifting: Some multinational businesses avoid paying tax by shifting profits away from the location where the activities creating those profits take place. G8 leaders have called on the Organisation for Economic Co-operation and Development (OECD) to draw up a template for global corporations to report to tax authorities on where they make their profits and pay taxes around the world. This will give tax authorities around the world a new tool against tax avoidance by multinationals.
4. Preventing avoidance and evasion by wealthy individuals: HMRC’s Affluent Unit is getting 100 extra investigators and extra risk and intelligence staff to identify and deal with tax avoidance and evasion. More specialist personal tax inspectors are being allocated to prevent evasion and avoidance of inheritance tax, using offshore trusts, bank accounts and other entities. These specialists will concentrate in particular on the agents involved in these activities. The unit also has a number of specialist teams, including:
   1. Finance: those connected to investment funds, private financing schemes or equities and banking organisations
   2. Rising stars: those whose wealth is increasing and who might become high net worth individuals in the next few years
   3. Business investment tax relief: handling claims for people not living in the UK who want to invest in UK businesses
   4. Analysis and intelligence: gathering and analysing information on an individual’s behaviour
5. Offshore tax evasion and avoidance: At the G8 Summit in June 2013, the member states agreed to establish the automatic exchange of information between tax authorities. The agreement built on the prior commitment made by France, Germany, Italy, Spain and the UK to pilot the automatic exchange of tax information. Twelve other EU Member States and Mexico and Norway have now joined up. Guernsey, the Isle of Man, Jersey , the Cayman Islands, Anguilla, Bermuda, the British Virgin Islands, Montserrat, Gibraltar and the Turks and Caicos Islands have also joined this initiative, agreeing to automatically exchange information about accounts held in those jurisdictions with the UK and others. HRMC also have a new centre of excellence within to be cohesive and enhance expertise in dealing with offshore evasion. The team is specifically tasked with identify the best use of data to identify offshore tax evasion.
6. Data and technology: The Government is committed to financing the continued advancement of the Connect software as well as identifying how to use their increased information powers to annually populate that software with more data.
7. Tax avoidance schemes: The list of measures is long:
   1. Disclosure of tax avoidance schemes
   2. General anti avoidance legislation
   3. Promoters of tax avoidance scheme – monitoring notices and penalties
   4. Settlement opportunities
   5. Accelerated payment notices
   6. Accelerated litigation
   7. Improving the quality of information available on avoidance to help taxpayers (some Lords must be actually sharing their extensive knowledge of legitimate tax planning)
8. Identifying beneficial owners of companies: Ahead of the G8 summit that the UK held in June 2013, new rules to bring in transparency on ultimate owners of companies was announced. The information will be maintained by Companies House although accessible to law enforcement agencies and tax authorities. G8 leaders also agreed to ensure that this is considered internationally too!
9. Minimising the hidden economy: A number of initiatives to deter people operating in the hidden economy (cheaper tax free deals i.e. cheaper for cash and those trading on the internet) including:
   1. Educational guidance and tools
   2. New online services and introducing a simpler income tax system for small businesses
   3. Identifying those within the hidden economy by matching information held, i.e. property ownership and electoral role, traders on e marketplaces and bank accounts etc.
   4. Encouraging voluntarily disclosures
   5. Target specific taskforces
10. Secret earnings: HMRC have more than 600 staff in their specialist hidden economy teams. The teams investigated 19,300 people during 2012/13 resulting in £160m of tax. Initiatives have included using UK Border Agency information to identify those exploiting illegal workers. Other initiatives include utilising information from Trading Standards, Vehicle and Operator Services Agency (VOSA), and the Department for Work and Pensions (DWP). HMRC have also worked with local authorities and Home Office immigration enforcement to investigate exploitation of migrant workers and multiple occupation of houses, London boroughs and police to tackle rogue landlords charging cash-in-hand rents and exploiting vulnerable people living in sub-standard or unsafe homes. HMRC also uses sales data from credit and debit card companies to cross check against VAT registrations and business income declared on tax returns.
11. Preventing tax evasion: Not only has Connect been continually injected with steroids, HMRC has also done the following:
    1. Set up over 60 regional taskforces since May 2011
    2. Implemented a publicity campaign which increases the perception that people will be caught if they evade their taxes
    3. Publicly named deliberate defaulters
    4. Placed known tax evaders under closer scrutiny for five years (monitoring serious defaulters)

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