HMRC have been talking tough with regard to tax avoidance for a number of years but do the numbers backup the hard talk?
Thomson Reuters data seems to back this up with an increase in the number of people being pursued through the courts for tax evasion being up almost a third in 2013/14 to 795 compared with the tax year before and is expected to rise to well over a 1000 for 2014/2015.
HMRC seem to be targeting tax evaders who fail to declare offshore income or gains. HMRC now need only to be able to show the money held offshore was taxable and undeclared as opposed to the old rules where the person holding the offshore income had intended to avoid tax.
HMRC are now also using criminal prosecutions which may have a deterrent effect on tax evaders.
The Finance Bill has now received Royal assent and controversial accelerated payment notices are now law. This means from next month HMRC can issue accelerated payment notices to people HMRC consider have been involved in tax avoidance vehicles and demand the full disputed tax is paid upfront.
The more interesting point is not how HMRC use these powers with current tax avoidance vehicles, but how it applies the powers to schemes and investments made many years ago, where investors will have got tax relief and the scheme is now a distant memory in the tax payers mind.
Will HMRC use these new powers to demand back payment of associated tax relief, penalties and interest?
The treasury have published a list on gov.uk website which lists the avoidance schemes HMRC are targeting and state HMRC may issue notices to people using such schemes over the next 20 months or so.
This will be an interesting story to follow, as the sums involved are likely to run into millions of pounds plus the powers have been criticised by leading accountants and lawyers as they do not give the taxpayer an option of disputing the tax before paying at a tribunal and also not giving a right of appeal. Perhaps a more fundamental issue, one which HMRC disputes, is that it is changing the tax law retrospectively. It is going to get interesting!
Tax avoidance is an all too common headline in the papers these days, it seems as though almost every celebrity is at it to some degree or another, while the man or woman in the street is struggling to make ends meet.
With tax paying being an almost moral question, how to pay one’s fair share of tax, and what is ones fair share? The papers have always taken an interest in celebrity tax payers, be it the Beatles or the Rolling Stones it has always made good headlines, so is today any different? Is tax avoidance by the rich and famous any more prevalent these days than in the past, probably not, according to HMRC’s figures the top 1% of earners now contribute 30% of the UK’s income tax, whereas in 1999 it was just 21%.
Well media scrutiny is much more intense these days, with the rise of the internet, twitter and Facebook as well as the traditional channels of television and newspapers have increased the spotlight on tax avoidance and also the new phenomenon of ‘celebrity’ where you only need to go into the newsagent and see magazines devoted to people who are famous for being famous.
Plus HMRC has more powers and access to information than it ever has, and with more powerful computers and data mining techniques the playing field is changing. An interesting example of this may happen in the next few months when HMRC will be allowed to demand tax on disputed tax amounts, and then the tax payer will be allowed to contest the disputed amount in the courts.
This will no doubt cause some tax payers significant cash flow problems or maybe bankruptcy, the playing field is definitely changing and it it towards HMRC.
HMRC have over the last few years been targeting schemes where investors have been receiving tax benefits in excess of their contributions to the scheme.
Investors often put up just a fractions of the capital and rely on structured loans to ensure they obtain substantial tax reliefs whilst having only a limited exposure to their capital. They then use these losses against other income which would have been treated as taxable.
When these cases are brought by HMRC, the conclusion often depends on whether the arrangement is genuinely for business purposes and if there are any loans involved, do they serve an economic purpose?
Film sales and leaseback partnerships are on of these types of arrangements that have been hitting the headlines over the last few months.
HMRC has performed 192 property searches in the first quarter of 2012, which is three times higher than any quarterly record available.
In 2011/12 there were 499 searches of residential homes and business properties which was a 155 percent increase on the previous year.
HMRC have stated they have an aim of increasing criminal prosecutions fivefold by 2014/15, and with the increase in searches of residential homes and business premises this target may be reached.
HMRC has recently come under increased attention due to the generally poor economic conditions in the UK and the media attention given to high profile entertainers and sportsmen using tax schemes to avoid tax payments.
The estimated amount of money lost to tax evasion in the UK is £4billion.
An important consultation document doing the rounds at the moment is the new General Anti Abuse Rule (GAAR) which is targeted at artificial and abusive tax avoidance schemes which can not be reasonably regarded as a reasonable course of action having regards to the circumstances.
This is already a gray area, and hopefully these rules will bring a bit of clarity around it, but any legislation needs to come with clear guidance, the better the guidance the more chance the legislation will achieve what it intends to.