HMRC to seize £4 billion more tax from investigations, pushing total amount to £16.1 billion

  • 33% increase on the £12.1bn clawed in during 2008/9
  • Can the Lib-Dems really add another £4.6 billion?

HM Revenue & Customs is planning to seize an additional £4 billion in 2010/11 through more aggressive tax investigation work and tougher powers.

This is a 33% increase on the £12.1 billion of tax clawed in during 2008/9 through compliance activity, taking the total amount to £16.1 billion in 2010/11.

In order to achieve such a high yield, HMRC will need to widen the scope of its enquiry work to include marginal cases, increasing the risk that innocent businesses are caught up in the net.

It is also questionable as to whether the Liberal Democrats’ pledge to collect another £4.6bn by clamping down on tax avoidance is achievable without creating unreasonable burdens for innocent taxpayers.

Comments John Ierston, Partner in our Chester Office: “£4 billion more tax is a massive increase that shows how urgently the budget deficit needs to reduced.  To achieve such an extreme target, HMRC will be forced to come down hard on legal tax avoidance and illegal evasion.”

“HMRC’s risk profiling is already far from being perfect, with many enquiries yielding very little or no additional tax at all, so how will HMRC improve risk profiling in order to better avoid causing detriment to innocent taxpayers?”

“Tax investigations can be hugely costly to taxpayers in management time, insurance and advisory fees.”

Much of the tax that HMRC claws in through investigations is actually not tax that has been deliberately evaded.  In many cases it is the result of HMRC reinterpreting tax law.  If an individual or business can’t afford to challenge HMRC’s decision through the tribunals and court system, then HMRC wins.

Powers that HMRC have recently gained include:

  • the right to visit business premises without giving advance notice;
  • the new penalty regime which replaced fixed fines (for example, £100 for late filing) with tax-geared penalties for making an inaccurate return and failure to deliver information to HMRC in due time. This means that higher the amount of tax owed, the greater the fine; and
  • a ‘name and shame’ policy through which HMRC will publish the names and details of individuals and companies that deliberately evaded over £25,000 in tax – a policy used by the Greek Government to deal with their financial crisis.

Powers that HMRC are currently seeking include:

  • the right to be able to routinely ask all companies for check, store and provide data on their trading partners; and
  • powers to charge penalties for late payments of in-year pay as you earn (PAYE) tax.