I mentioned yesterday that I though I should suggest some enquiries I thought HM Revenue & Customs should make to root out the cash economy and the tax evaders who populate it.
The criteria I suggested for these questions was that they have to be:
a) Systematic
b) Targeted
c) Highly likely to result in high quality information leading to worthwhile enquiries
d) Aimed at tax evasion
e) Aimed at higher net worth individuals.
I started by suggesting a question to be sent to all private schools asking for the names of all parents and guardians paying school fees in cash, which I understand to be commonplace. The next follows this broad theme, having with it in common the fact that the person enjoying the service can be unambiguously identified. This would be an enquiry to be sent to all providers of private medicine in he UK (including — and perhaps especially cosmetic surgery) along the following lines:
Please would you supply the names and addresses of all patients making payment of fees for medical services who have settled total liabilities exceeding £500 in cash in the last two years?
As with the school fees enquiry, the advantage of asking private hospitals is that the identity of the payment has to be unambiguously associated with a named person and address. There is also no risk to medical confidentiality — the detail of the procedure is not the subject of the enquiry.
I’d expect a significant revenue yield from enquiries resulting from such letters.
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Unless you’re going to legislate for this I suspect the insurance company and the private school would simply turn round and reply, “I have no legal authority to do so”.
And why schools and hospitals? Why not any business which accepts cash over £500? If the government were to legislate for schools and hospitals only then I suspect you’d find the government going to Strasbourg pretty soonish.
A quick google search on “paying school fees by cash” reveals no links to any stories suggesting that the payment of school fees by cash is commonplace. So perhaps you would substantiate your assertion.
L.
@Lester Piggott
They have no legal right whatsoever to refuse
They can either cooperate or HMRC can investigate
As for my sources – you’re not seriously going to ask me to disclose them are you? Journalists don’t
I would have guessed, without research, that such a disclosure would infringe the seventh data protection principle and, as a consequence, be entirely unlawful
@Gutbucket
Shall we not be silly here?
HMRC can make such enquiries as they think appropriate of any tax payer.
HMRC are also allowed to use information received when investigating one tax payer’s affairs to investigate the affairs of another tax payer – and do.
It’s a standard part of any enquiry that they collect data of this sort – whether they say they are or not
Sorry, I’m not being silly, just stating what I think is the legal position.
If there is an exception for this sort of enquiry (which isn’t about the subject of the enquiry itself, but its data subjects), I’m all ears
I think this kind of query is going to bring out lists of lower income families. From my experience, they are the ones dealing mostly in cash. Hell, I have worked where at payoff, the lower-skilled requested their whole payoff in cash where the skilled managed simply asked for checks.
Actually until relatively recently, HMRC had no powers to compel a third party to provide this kind of information. That changed in 1988 – the Revenue can now apply to a tribunal to require disclosure to identify unknown individuals who HMRC have reasonable grounds for believing are evading tax (this is now in Schedule 36 of Finance Act 2008). The schools would have an opportunity to resist the order – they could for example argue it is too onerous. But, provided the Revenue could show there are reasonable grounds for believing cash payments are linked to evasion, I’d expect an order would be given. If so, this would
override data protection considerations.
On the other hand, a school would be risking all kinds of problems if it simply volunteered information to HMRC without an order. It would be improper of HMRC to ask for this information under the pretence of investigating the schools’ own position – there would be clearly no relevance, and no obligation on the schools to respond.
@Marc Daniels
Thanks for saving me the time on the technical reasoning
Re the school’s position – would it really want to be seen to be going to court to defend tax evaders?
@Fred Fry
The people you refer to don’t, by and large pay school fees or for private medicine in the UK
Not least because we have very good state facilities
@Richard Murphy
Welcome to Murphy’s police state, every is guilty until proven innocent!
@Richard Murphy
Welcome to Murphy’s police state, every is guilty until proven innocent!
(Showed up as Richard’s response to Fred Fry below)
I’m not sure he has saved you any time on the technical reasoning. What he has said is:
1. without an order, they should not give the information, and
2. HMRC will need reasonable grounds for believing that tax is being evaded.
In other words, the fishing expedition that you propose is not feasible.
Schools would have a quite legitimate concern re. claims from parents for breach of confidence/data protection. These could be made either by actual tax evaders or by innocent parents acting out of principle or mischief. The former would have little chance of succeeding in court (but could certainly waste the schools’ time/money); the latter quite possibly would succeed.
So if I was acting for the school I would advise them not to voluntarily comply; on the other hand neither should they resist any Revenue court application. Banks often find themselves in a more difficult position, as their contractual or foreign law obligations to customers can require them to take reasonable steps to resist Revenue applications. It’s unlikely schools would find themselves with this kind of problem.
@Gutbucket
And with respect, I disagree
I think it would be very easy indeed for HMRC to secure enough information to persuade Tribunals to allow such an order
@Marc Daniels
Why is it the profession is always on the side of the tax evader?
@Gutbucket
I agree with Richard – the caselaw is such that the threshold for HMRC is not particularly high. In fact I’m not sure HMRC have ever lost an s20(8A) application.
Can I add a question #3? Estate agents should be asked for the names of customers to whom they’ve sold stamp duty “avoidance” schemes. Scare quotes are appropriate because, from what I’ve seen of these schemes, their legal basis is tenuous at best.
Sadly this is all the tax equivalent of fantasy football – there is zero prospect of the current Government letting HMRC pursue any such targets.
@Richard Murphy
I’m not sure I understand.
@Marc Daniels
What I mean is why is it that being a tax professional requires even those who wish to tackle tax abuse to block attempts to prevent tax evasion – because we have an apparent ‘duty’ to do so?
@Richard Murphy
My, only slightly tongue in cheek, response: why is it that being a criminal defence lawyer requires even those who wish to tackle terrorism and child abuse to block attempts to prosecute terrorism and child abuse?
Yikes! Citizens being used to tell on each other? This is truly frightening stuff, and straight out of the former Soviet Union.
Arbitrary interference with privacy is a human right. It is listed as high as #12 in the Universal Declaration of Human Rights. The right of the HMRC to abitrarily snoop on entirely lawful transactions with no grounds for any suspicion is mentioned nowhere there.
If there is an inconsistency between the tax system and human rights, it is the tax system which needs to give way.
Sorry, typo, meant to say ‘arbitrary interference with privacy is CONTRARY TO human rights’.
@Adrian
Respectfully, we’re talking law enforcement against crime here
Not just a little crime – crime involving 13% of UK GDP
Crime that impacts the 87% seriously
Crime that undermines property rights
And human rights
And trust in the instruments of governments that are the only mechanism to enforce human rights
There’s no inconsistency with tackling that crime and human rights
Tackling that crime is the only way to have human rights
Argue other wise and you’re not for human rights
I guess those agin are the same who are quite happy with the ‘get tough with benefit fraud’ action being taken by the ConDems.
@Carol Wilcox
Didn’t you know that entitlement to human rights is directly and positively correlated with wealth? 🙂
@Marc Daniels
Marc,
I’ve looked at Sch 36 FA 2008. It appears to say that HMRC can compel a third party to produce evidence if reasonably required to investigate the affairs of an identified taxpayer.
In the situation Richard describes, it is hard to see that a taxpayer has been identified. As someone else said, it is merely a fishing trip.
So, as far as I can see, such a request from HMRC would be unlawful. Of course you can legislate to change that position, but do we really want to lumber businesses with the legal requirement to disclose information without any kind of suspicion at all on HMRC’s part? As far as I’m aware even HMRC have never argued for these powers.
I am also confused as to Richard’s position now.
He started off by asserting that a lot of school fees are paid by cash. He then stated that few low-income families use private schools – which is almost certainly correct. But it is almost certainly correct too that most people who use private education are likely to be accountants, bankers, directors, and these people are almost never paid in cash. So who are these people who pay school fees in cash and given their likely occupations, why would they pay in cash?
sorry to disappoint you Richard: as a governor of a major independent school I can assure you that the payment of fees in cash is extremely rare.
needles and haystacks come to mind. why not live within the confines of the money laundering legislation?
@Lester Piggott
Lester, that’s not right – see paragraph 5 of Schedule 36 (the old section 20(8A) TMA), which was enacted specifically for this case. There have been numerous rulings thereunder – HMRC calls these “identity unknown notices”. If you google that term you will find the HMRC guidance on the subject.
Trust me – I’m a lawyer.
My kids used to go to a private school and there was a specific clause in the contract saying that all payments over a certain amount (I think it was a couple of hundred quid) had to be by cheque to comply with money laudering regulations. This was a school run by a sole trader. I once spent about £250 on uniform and paid cash. I wasn’t offered a receipt and asked for one, joking about my job (I work for HMRC). The staff member went bright red looked away and mumbled something. Makes me think the cash wasn’t going through the books so I doubt private schools have much motivation to comply. Another think that strikes me if the number of people with kids on scholarships/bursaries to private schools who are self employed. I wonder if they suppress their earnings when applying for bursaries and presumably in their tax returns too.
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