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Labour targets £7.5bn tax evasion clampdown

Labour has claimed it will reduce tax avoidance and evasion by £7.5bn a year by the middle of the next parliament. 

The party has also pledged to reduce pensions tax relief for higher earners, alongside similar plans by the Conservatives.

Shadow Chancellor Ed Balls laid out the target this weekend as part of a ten-point plan to tackle avoidance and evasion.

The plan, which includes previously announced measures on non-doms and a new tax avoidance bill, also calls for an immediate review of HM Revenue & Customs measures on avoidance and evasion.

The Labour proposals would also see both the Chancellor and the HMRC chief executive presenting an annual report to Parliament, and giving evidence to the Treasury select committee, on the government’s progress in tackling tax avoidance and evasion.

Ball says: “We will set tough targets for HMRC to reduce tax avoidance and evasion by at least £7.5bn a year. Our ten-point plan will take the tough action needed to help us get there and we will start on day one of the next Labour government.

“We will close the loopholes the Tories won’t act on, increase transparency, toughen up penalties and abolish the non-dom rules. And our first Budget will make sure that, following an immediate review of HMRC, it has all the powers and resources it needs to come down hard on tax avoidance and evasion.”

The plans come as Labour unveils its 2015 manifesto, which promises that none of the party’s campaign promises will require any further borrowing, while also committing the party to reducing the deficit every year, with Budget sums independently verified by the Office of Budget Responsibility.

As part of the plans, Labour has also confirmed it would seek to limit tax-free pensions savings allowances for those earning more than £150,000.

According to the Institute for Fiscal Studies, the party’s plans are a modification of a policy launched by the party in 2009, which proposed restricting tax relief on pension contributions to the basic rate, but only for those with incomes above £130,000 and whose gross income plus employer pension contributions was above £150,000.

But the IFS warns: “The way the [2009] policy was designed meant some with large employer pension contributions would face a substantial increase in their income tax bill if their income rose from just under to just above the £130,000 threshold. For example, an individual earning £129,000 plus an employer pension contribution of £40,000 would face an increase in their annual income tax bill of over £10,000 if their current wage were to rise to £130,000, assuming a top rate of income tax of 50 per cent.

“Effects of this kind are almost inevitable when introducing complexities such as this which result in treating people very differently once their incomes rise above a certain level.”

Labour’s ten-point plan to tackle tax avoidance is to:

  • Abolish the non-dom rules, while introducing a temporary residence rule for those in the UK for a short period of time, such as university students.
  • Rewrite the rules which allow private equity managers to pay less tax than taxpayers even when they have not been investing their own money
  • Close loopholes used by hedge funds to avoid stamp duty
  • Force the UK’s Overseas Territories and Crown Dependencies to produce publicly available registries of beneficial ownership
  • Increase penalties for tax avoidance including new penalties for those who are caught by the General Anti-Abuse Rule
  • Close loopholes allowing some large companies to move profits out of the UK and avoid corporation tax
  • End the “Shares for Rights” scheme
  • Tackle disguised self-employment by introducing strict deeming criteria
  • Tackle the use of dormant companies to avoid tax by requiring them to report more frequently
  • Make country-by-country reporting information publicly available

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Whoever gets in needs to have clear policies and be able to focus on evasion and avoidance first and foremost. The large companies proposal is commonsense, if they do not pay their way it sends out the wrong message to other taxpayers, and perhaps encourages avoidance.

    Because HMRC do not have the resources to deal with the bigger problems, they are going for softer targets, in a similar way to the FSA not tackling the big issues. The problem is that they are straying into the areas of legitimate tax planning, without being able to clarify what is acceptable to them.

    Aggressive tax planning tests the weakness of previous legislation, very often badly drawn up, so it is far better to draw a line under the past and move on. Personally, I do not necessarily agree with tax structures that may come under challenge at a later date, others may conclude that they are risks worth taking.

  2. The political claims on this issue leave a bit to be desired. They happily use “avoidance” and “evasion” in the same sentence merging the two into one crime which is far for the actual truth.

    I wish politicians would cease this moral witch hunt on avoidance (perfectly legal) and concentrate on chasing the unacceptable face of evasion.

    For HMRC, they need to be clearer up front with what they agree is acceptable and need to stand by decisions they make later down the line. That could be a pipe dream though as it is with our own regulator where it is seemingly impossible to get an interpretation for the FCA until after the fact….

  3. @ Chris

    Personally I think HMRC is between a rock and hard place. You have economic illiterates on the PAC (a case of mission creep if ever I saw one) combined with the political expediency of point scoring.

    Sound management and planning of the tax system doesn’t get a look in, at least not out in the open.

  4. The main complaint ordinary people have is that international and large national companies and rich individuals mange to so “hide’ their income they pay little or no tax. That is no longer acceptable.

    I think one example of my views on “evasion” or technically called avoidance” is Amazon’s huge warehouse North of Edinburgh in Fife. As I understand it Amazon built it using mainly grants and runs it with out paying much business rates tax. I hear it employs people on or just above the minimum wage whose salaries are thus increased by the tax payer. It sells at great profit all over the UK but pays hardly any corporation tax. Why because it shelters its profits through host of ” shell type” companies and so called loans and registers in Luxembourg.

    Well I think companies that are located in UK and sell to people in UK should pay tax in UK and not be allowed to employ clever lawyers to avoid or even I think evade paying taxes.

    I and many other people are fed up with this double standards and any party that clamps down on abuse is to be congratulated. Don’t give me that – rap about if HRMC allows companies to get away with it so its OK – NO its not. John Lewis pays its taxes in UK and so should all the thousands of other companies like google, starbucks, macdonalds etc. Plus no HRMC pensioners or ex workers should be allowed to go off and help companies avoid tax if they do then their pension should be cancelled because they are abusing my and society’s human rights – “That we all pay our fair share of taxes”.

  5. I think that a useful measure of HMRC’s effectiveness at tackling avoidance by large corporates would be to make a request under the freedom of information act to see how many and aggregate value of penalties issued that were classed as ‘deliberate’ under the powers in Schedule 24 to Finance Act 2007. This piece of legislation refers to inaccuracies in returns thus applying to avoidance rather than the automatic penalties issued under TMA1970. The Schedule 24 to Finance Act 2007 legislation provides for the penalty percentage to be dependent on the culpability of the taxpayer and is split into the following 3 categories; careless, deliberate not concealed and deliberate and concealed. A deliberate penalty would apply where the person knew the step that they took would create a tax advantage whereas careless applies more to administrative errors. As avoidance would normally fall under the ‘deliberate’ category it would seem to me that a good measure as to HMRCs effectiveness at tackling avoidance would be to look at the number of penalties issued under this specific piece of legislation. The questions I would ask HMRC are:
    1. How many and what was the value of the penalties issued under the legislation in Schedule 24 to Finance Act 2007 in each of the last 4 years by the following directorates:
    a. Large Business Service (this looked after the largest 1,000 companies in the UK until April 2014 when Large Business was created incorporating 1,000 businesses from Large and Complex directorate)
    b. Large Business
    c. Large and Complex (Large and Complex directorate was renamed mid-sized business when it lost 1,000 companies to Large Business – it looks after approx 6,000 corporates)
    d. Mid-Sized Business
    2. In relation to your answer to question 1, please specify the number and the aggregate value of the penalties that were suspended for each directorate?
    3. In relation to your answer to question 1, please specify the number and the aggregate value of the penalties issued which were categorised as deliberate?

    My understanding is that for 2013/14 there were no deliberate penalties issued by Large Business Service.

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