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Tony Wickenden: Plugging the tax gap

HM Revenue & Customs posts notable successes in its high-profile campaign against tax avoidance

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Putting “developments in tax avoidance” into a search engine will deliver an awful lot of interesting stuff.

For example, you might find out it has been reported that HM Revenue & Customs has netted a record £23.9bn in additional tax through its relentless efforts to close the “tax gap” through action against tax avoidance schemes. 

The tax gap is, broadly speaking, the difference between the tax that would be collected if the tax legislation were applied and adhered to in the way that was intended by Parliament and the tax actually collected.

It stands at over £30bn at the moment, apparently. 

The attack on aggressive avoidance is multi-faceted and takes effect on many fronts: litigation, publicity (to get the public on its side) and targeted legislation.

HMRC also has the as-yet-largely-unused “nuclear” deterrent of the General Anti-Abuse Rule.

HMRC said it made the additional  of £23.9bn over the tax year 2013/14, which is almost £1bn higher than the target set by Chancellor George Osborne in last year’s Autumn Statement, according to the BBC.

It is also a £3.2bn increase on the previous tax year. So the report to “investors” by HMRC Plc is pretty impressive. If HMRC had a share price…

Multi-faceted approach

Treasury minister David Gauke said the Government was determined to tackle the “minority” that avoid paying taxes due. More publicity and spin here. Statements like that put the Government in a good light with the rest of us honest taxpaying citizens. No really… they really do.

Mr Gauke goes on to say that “HMRC will pursue those seeking to avoid their responsibilities and will collect the taxes that are due”. 

HMRC’s activity through tribunals and courts is testament to this. Remember the recent actions against some of the Take That boys attempting to significantly reduce their tax bills through arrangements that were clearly in opposition to the intention of Parliament and ripe for a purposive approach to be applied to determine their success – or otherwise?

HMRC said more than £8bn came from large businesses, £1bn from criminals and £2.7bn from tackling avoidance schemes in court. 

Here is evidence again of the importance of a multi-faceted approach. HMRC also added it expects to get around £100bn between May 2010 and March 2015 as a result of its tax evasion investigations – tax evasion (and crime) being by far the biggest contributor to the tax gap of over £30bn.

And it doesn’t stop with attacks on the principle and specifics of aggressive tax avoidance.

HMRC has recently introduced the reasonably well-reported follower notice procedure to issue a demand for tax from those who have adopted schemes similar to those that have been defeated in the courts and tribunals.

A proposal (to become law on royal assent to this year’s Finance Bill No 2) also exists to permit HMRC to issue an advance payment notice demanding estimated tax in dispute in relation to any scheme with a Dotas reference number or which has been cleared by the GAAR advisory panel for attack under the GAAR.

And, finally, evidencing HMRC’s refreshed love affair with cash-flow, we have the (much-disputed) consultation on direct debt recovery from taxpayers’ bank accounts, joint accounts and Isas although we feel there is a lot more to be said on this proposal.

All this activity serves to reinforce the belief among many that tax and financial planning should now even more so be restricted to the tried and tested.

As I have said before, “boring is the new exciting”.

Tony Wickenden is joint managing director of Technical Connection

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  1. The latest edition of Private Eye has a rather more jaundiced view of the stats in these self-congratulatory press releases HMRC is putting out (and effectively debunks some of the claims made/spin therein).

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