HMRC builds war chest in battle against tax avoidance

HM Revenue & Customs will receive an extra £292m over three years to tackle tax avoidance and evasion in a bid to boost the funds available for public spending.

On Wednesday, the government also confirmed plans to legislate for a clampdown on “promoters” of tax avoidance. The previously trailed crackdown is expected to bring in an extra £130m by the end of 2026-27 — or less than £25m a year.

But tax experts said the government could have gone further to ensure companies and individuals pay the tax they owe.

Dawn Register, head of tax dispute resolution at accounting firm BDO, said the extra funding for HMRC was “a drop in the ocean compared to the levels of tax evasion and the billions needed to support public investment”.

The additional £292m is part of a series of wider increases in HMRC’s funding, which will rise from £4.2bn this year to £5.2bn next year, before dropping to £4.7bn by 2024-25.

Uncollected taxes for the year to April 2020 were estimated at £35bn, or 5.3 per cent of total tax liabilities, according to HMRC estimates. About half of this “tax gap” is attributable to criminal activity such as smuggling, tax evasion, non-payment or “hidden” or undeclared economic activity. The shortfall is likely to have grown during the pandemic.

“Unpaid taxes are expected to rocket due to many businesses deferring taxes, the abuse of Covid support schemes and a decline in HMRC inquiry work during the pandemic,” Register said.

“A much greater investment seems sorely needed and [its absence was] a missed opportunity from this Budget.”

Andrew Walker, a tax partner at accounting firm RSM, said the Budget was “fairly mute” on new anti-avoidance measures but that the government had not shown any sign of letting up on efforts to tackle the problem.

The government confirmed £55m of funding next year for the Taxpayer Protection Force. A £100m investment had already been announced in the spring Budget for the unit of more than 1,200 HMRC staff to combat abuse of Covid-19 support programmes, such as the furlough and self-employed income support scheme.

The clampdown on companies and advisers promoting tax avoidance schemes is expected to boost Treasury coffers by £5m in the current tax year and an additional £125m over the following five years.

The measures, included in a consultation in July, will give HMRC powers to freeze the assets of promoters of tax avoidance schemes to ensure that penalties levied are actually paid. Companies and partnerships promoting avoidance schemes will be liable to be shut down.

The new laws, to be included in the next finance bill, will aim to squeeze offshore tax promoters by introducing penalties on UK entities that help them to operate.

The authorities will also be empowered to publicise information about tax avoidance schemes and those who promote them so that taxpayers have the opportunity to avoid being sucked in.

The government said it would set out separate plans to combat abuse of R&D tax reliefs “later in the autumn”.

Wednesday’s announcements followed a wider suite of interventions in chancellor Rishi Sunak’s spring Budget to combat tax avoidance.

Those measures, which were expected to raise £2.2bn for the exchequer by 2025-26, included a tougher penalty system for late submission and payment of taxes by VAT-paying businesses and self-assessment taxpayers.

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