‘Aggressive’ taxman raking in more than ever

The taxman’s hands are rubbing together after raking in the biggest annual increase in the amount collected from compliance work since HM Revenue & Customs set up five years ago.

Issuing the finding, a leading accountancy firm showed HMRC’s income from investigating tax evasion and avoidance in the last 12-month period (for which data are available) climbed to £16.5bn.

That represents a 37% jump on the previous tax year – when the haul came in at £12bn, directly reflecting the tax authority’s “more aggressive approach”, UHY Hacker Young said.

Indicating businesses have been hit the hardest, the advisor said corporation tax enquiries were the single biggest contributor to the Revenue’s haul, accounting for 24 per cent (£4.6bn) of the total.

But it is HMRC’s VAT compliance unit which has seen the most growth (92% year-on-year), particularly among larger businesses, with the haul from VAT inspections up to £6.2bn in the last 12 months, from £3.2bn in the previous tax year.

“The government and HMRC now seem to believe that they found the secret of alchemy,” UHY Hacker Young reflected. “All they need to do is invest more money in tax investigations and compliance work and the extra tax income will keep flooding in.”

“The reality is that much of the money that HMRC collects from compliance work is from businesses that feel intimidated into settling with HMRC, or it is from litigation where HMRC is able to outspend a less well-resourced small or medium sized company.”

The firm’s Roy Maugham acknowledged that that extra money from HMRC’s more aggressive stance is helping to fill the hole in the government’s deficit.

But he warned of a downside that will impose significant, harder to fathom costs on the exchequer. “Everything needed to collect this extra money – all risks making the UK a less attractive jurisdiction for businesses,” he said.

“Many UK companies have moved their domicile overseas to Ireland, Switzerland and Malta not just because of the UK’s high business taxes but also because of the increasingly aggressive attitude of HMRC to tax collection.”

The loss in tax revenues from UK businesses relocating their headquarters overseas could be far more costly to the Treasury, the advisor said, than the short term boost from the increased compliance take.