Osborne used 'tax imbalances' to meet £5bn target

George Osborne seems to have moved the goalposts at Summer Budget 2015, as he created the area of tax “imbalances” so his pledge of getting £5bn from a tax clampdown can be met.

The chancellor appears to have realised that the Tories promised in April in their manifesto to raise “at least” £5billion from tackling tax non-compliance, such as “aggressive” avoidance.

But a forecasted breakdown of total tax receipts for the year 2016-17, which was released on Budget day July 8th, shows that Mr Osborne can find only £1.3billion.

He has therefore added the new area of “total imbalances in the tax system” to the existing category of “avoidance, tax planning, evasion and compliance,” so his £5bn can be reached (specifically in 2020-21, when £5.8bn will be raised).

Described as “where [tax] support disproportionately benefits certain groups or types of business structure,” these imbalances will be head off to singlehandedly raise almost £2.5bn in 2021.

The Budget counts six imbalances, including the Employment Allowance -- it will be axed for single-person firms, and Tax Motivated Incorporating –- it will reduce due to the dividend tax hike.

Contractors will be hit hard by both, despite the Budget red book saying addressing such imbalances in the tax system is “in order to pay for tax reforms to support individuals and businesses.”

Renewable energy producers, ‘non-doms’ and asset purchasers are other losers of the chancellor’s targeting of tax imbalances, which the Treasury says have “developed over time”.

But far from reprimanding the authority that administers the tax system, HM Revenue & Customs, the Budget increased HMRC’s funding, notably to a total of over £60million by 2020.

The investment should allow HMRC to treble its criminal investigations, with a goal of pursuing 100 prosecutions a year by 2020 and a focus on wealthy individuals and corporates.

The Revenue will also be given powers to acquire data from online intermediaries and electronic payment providers, so it can find people who operate in the ‘hidden economy.’

“We will invest in new HMRC investigators from 2016 to exploit this data,” the Budget says.

“The government will also create a digital disclosure channel which makes it simple for taxpayers to disclose unpaid tax liabilities.”

According to the Treasury, the Revenue will net £9 for every £1 invested under its £800m investment plan, which includes £300m from 2016 to tackle non-compliance by SMEs.

Meanwhile, the government will introduce legislation to allow HMRC to recover tax directly from debtors’ bank and building society accounts, including funds held in cash ISAs.

It said: “This measure will be subject to robust safeguards including a county court appeal process and a face-to-face visit to every debtor before they are considered for debt recovery”.

Graham Webber, a director at tax investigations specialist WTT Consulting reflected on what he called a “very contentious” measure.

He told ContractorUK: “Despite various assurances and safeguards it seems that HMRC will be able to remove funds from bank accounts in some cases.

“Whilst we are promised that this will be limited, it is inevitable that mission creep will extend the powers. It is to be hoped that the county court judge looking at the first such applications will take the opportunity to draw some hard boundaries and prevent what amounts to legalised larceny.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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