Revenue eyes £2.4bn in dodged taxes

For the first time in its history, the Revenue has given a breakdown of its spending to reveal it will pour £1billion into enforcement this year to catch avoiders and evaders.



Disclosing the pledge to spend a quarter of its £4bn budget on people flouting tax rules, HMRC chief executive Lesley Strathie said it should yield £2.4bn in returns.



One advisor said the sum for the clampdown was "staggering" and represented the biggest chunk of HMRC's budget. IT, for example, will absorb 21% of expenditure.



But a former Inland Revenue tax inspector, Kate Cottrell, told Contractor UK that the scale of HMRC's budget for pursuing suspected tax cheats was 'not all surprising.'



"Last year's Pre-Budget Report and this year's Budget were riddled with 'warnings' and a commitment to paying the right amount of tax and getting a fair system.



"Add this to the state of the government finances," she said, and "this budget announcement for enforcement is the final warning shot, so everyone should look at their own [tax] situation."



She said pursuing those taxpayers suspected by HMRC of having bent or broken the rules was almost certainly the most cost effective use of the department's resources.



Tax officials also see the strategy as vital after the agency's policy to take individuals to court, rather than settle in cash before, proved more costly than they anticipated.



The PCG said: "It's legitimate for HMRC to enforce the law; our concern is that they tend to do it very badly, with destructive repercussions for innocent taxpayers."



John Kell, group policy manager, hinted that although declaring the budget for enforcement would aid transparency at HMRC, taxpayers still faced a great deal of uncertainty.



"There are so many unknowns here: we don't know how this 25% figure compares with resources devoted to enforcement in previous years; we don't know how the Revenue will make use of its new powers .



"We also don't know what sort of cases they will focus on; and we don't know whether this budget is to pay for enhanced training for staff. The latter could be a good thing, if it prevents the sort of blunders and misunderstanding HMRC seem prone to when handling IR35 cases."



According to PCG figures, IR35 cases brought by the Revenue, which involved the trade group, total 1,468, of which the taxpayer owed employment taxes on just six occasions.



Yet IR35 adviser Bauer & Cottrell said: "If we look at HMRC's statistics for offices and staff numbers, 1462 failed cases over ten years represents a very tiny drop in a very big ocean.



"IR35 seems to be back on the front burner [but it] is not as some are claiming, a barrier to enterprise designed to stifle the entrepreneur, but rather a proven, extremely important and indeed lucrative part of HMRC's defences and will continue to be so."



The firm warned that IT contractors who are investigated under IR35 and pay the tax demand, but do not appeal, might be "named and shamed straight away" on HMRC's new blacklist.



Asked if IR35 entities would appear on the list, designed to deter people from dodging at least £25,000 in taxes, a Revenue spokesman responded by referring to Budget Notice 63.



He cited point 15, under 'current law and proposed revisions,' which states taxpayers' "details will not be published until all appeal avenues against the additional tax and penalties are exhausted or expired."



"The person being named will have to have incurred a penalty for deliberate concealment." added Mr Kell. "In other words, they will have, at some point, tried to hide the true state of their affairs from HMRC.



"Officials won't be able to claim that the typical IR35 victim has done this: usually IR35 investigations involve a fair disclosure of what has gone on, and the problems arise when the two sides disagree about how to apply the law to those facts. So it seems unlikely we will see IR35 cases on the list".



Yet Ms Cottrell stood firm in her warning, pointing out that the Revenue's criteria to join the list still left room for IT contractors who get caught by IR35 to be included.



"I expect that when an IR35 case goes to the special commissioners and the taxpayer loses, it will be highly unlikely that it will go any further just to appeal the penalty part," she said.



"I think we could [therefore] start to see some of these names sooner rather than later".



In its business plan, the Revenue said it would tailor its enforcement activity to "particular customer groups", such as by setting up a High Net Worth unit to 'build a better understanding of the overall tax position' of the wealthiest taxpayers.