There has been some publicity over the last few days about H M Revenue & Customs having secured the names of 500,000 people in this country who have offshore bank accounts.
I obviously welcome the fact that they have this information.
Some of the data, we know, comes from HSBC in Switzerland, whose former chairman has been rewarded for his activities by becoming a trade minister in the coalition government. The 7000 names from this source are thought to have £13 billion offshore. If the income is tax evaded they alone might be responsible for a loss of revenue to HMRC of £200 million or more a year.
The remaining names came from a variety of sources according to the Sunday Times. However, I gather that the main sources were the UK clearing banks, who were forced to disclose information to HMRC more than two years ago. What I also gather is that almost none of the data has arisen from tax information exchange with any tax haven. There's no surprise there: these information exchange agreements are useless for that purpose.
There are, however, three big questions to ask.
The first is why has it taken so long to act on this data? It seems absurd that progress has not been made to date.
Second, where are the resources to come from to tackle this issue when HMRC is to lose 15,000 staff over the next few years? There is only one way to undertake a mass investigation of tax evasion and that is to employ people to do it. If there are really 500,000 tax evaders then 500,000 enquiries need to be opened. Why isn't the Revenue doing this? Why isn't it employing the people to do this? Doesn't it want the tax?
Third, and perhaps just as important, whilst it would be absurd to suggest that the average scale of offshore holding was of the extent reputed for the HSBC accounts in Switzerland, the tax loss on each of these remaining cases has only to average £2000 pa for £1 billion of total tax evasion to have arisen. And yet, when offering its estimate of the tax gap the Revenue still claim that tax evaded in total with regard to income tax, National Insurance and capital gains tax is little more than that sum. The question has to be asked, yet again, as to why they are putting forward figures on the tax gap that are so clearly understated?
Is there some sort of deliberate ploy going on to ensure that far too few cases are investigated, with far too low yield found, which can be justified by stating the problem is far smaller than it is? That seems to be the only obvious conclusion, and if it is true it suggests that there is a serious problem right at the core of the management of this issue, which in turn suggests a need for a radical overhaul of the management of HMRC to ensure that it does the job that we all expect of it — which is to collect tax impartially, in accordance with the law, and without fear, ensuring as a consequence that everybody pays their rightful obligation.
Is it really too much to ask that the Revenue do that?
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As for point (2) – HMRC has long been held up as the bogeyman who takes the money of hard working individuals. It’s only in recent months that people have realised that they also go after the big targets and try to take it from the rich, who try so hard to avoid paying it. Where are the resources going to come from? Good question – the government is determined not to fund HMRC, despite it being the biggest revenue generator for the country. After all, if no one is going to insist that you pay tax (and have the power to make you) then who is going to bother? Only the people on PAYE schemes are really obliged – the people smart enough to avoid them can get out of it.
Despite public perceptions, tax inspectors aren’t particularly well paid. The only thing going for them are the pensions, but even these are under threat. If the government is serious about claiming back this money they need to address the under-staffing and under-funding of HMRC and give them back some teeth.
More squeezing of the hapless and helpless middle classes, then, as the very rich can avoid tax by, ahem, avoidance and the very poor can avoid tax by payment in cash or in kind. This could be seen as deliberate destruction of the middle classes, reducing them to poverty through taxation. This would leave us with a handful of the super-rich and hoards of very poor people. Will these super-rich have flying cities a la Zardoz, I wonder? Dammit, it’s getting harder and harder these days not to be a conspiracy theorist; just look at what’s really happening all around us 🙁
BB
It suggests to me we’ve gone one-step beyond mere regulatory capture, we’re looking at the capture by financial interests of government itself.
BB
It would be interesting to know on what basis the 500,000 Britons who have, reportedly, offshore accounts are presumed to have evaded tax. In addition, has the HMRC made the information public about the 500,000or is this nothing more than a convenient rumour.
The newspaper report you linked to made it perfectly clear that, insofar as the HSBC leak in concerned, the HMRC are currently investigating and have identified 3,000 of the 7,000 as possibly being involved in tax avoidance activities and have furthermore written to over 25% of them requesting information – perfectly normal procedure by HMRC. And they have indicated they will be contacted the balance.
What more do you expect HMRC to do in the circumstances – go beyond the rule of law and that of natural justice?
I know a little more about this than merely referring to the report.
I can say the story was placed by HMRC with the press
And I can say that they think that the cases are all potentially related to tax evasion – that’s their story, not mine – some versions of the story carry details making clear the type of people they think have such accounts – including (heaven forbid) fish and chip shop owners
The 500,000 figure is the number they think have evaded – they said so – in which case my question is valid
It must be obvious to everyone that having the names of 500,000 people with offshore bank accounts is not the same as having the names of 500,000 people who are tax evaders. I have an off shore bank account. In fact I have bank accounts in three continents. Comes from a life time of working over seas. I find the insinuation that I am evading tax offensive.
I notice that the language is now changing. Now you refer to people who are potentially evading tax. Now that is a different claim. Anyone *may* be evading tax. Every worker in the world is potentially a tax evader. In the same way they are potentially murders or rapists or, for that matter, stamp collectors.
I am actually quite annoyed about this smear. I would, politely, suggest more careful language in the future. I have spent much of my life working overseas, making the world a better place, contributing to Britain’s economy, reputation and exports. I don’t see why that should make me a criminal.
I didn’t make the insinuation
HMRC did
They gave the figure and the insinuation to the Sunday Times
I suspect they had good reason for doing so
And if you’ve paid your tax I very much doubt you’re on the list – after all, there would be no point of you being on it, would there?
If the HMRC made such a claim I regret that I am unable to find it. You have linked to two sites. The Australian newspaper only said this:
“The Sunday Times has also learnt that HMRC now has a list of 500,000 Britons with offshore bank accounts from an array of sources.”
The second sources does not even mention the half a million figure.
Now perhaps I have missed where this insinuation occurred but the only place I have seen it is here.
Why do you suspect they have good reason to do any such thing? Millions of British people have lived or are living overseas. If I look around my very working class family I have relatives in four continents. The majority of my cousins now live outside the UK. They tend to have bank accounts. That does not mean they are evading or avoiding tax.
I pay my taxes. But I am almost certainly on that list – I am a British passport holder and I have more than one bank accounts overseas. One of them with HSBC as it happens. Of course there is no point in being on the list. But that is the problem isn’t it? They have a smaller list of 7,000 people with HSBC accounts who may be evading taxes. Even half of them are in the clear. My ex’s brother works in Switzerland and so he is probably on that list. I doubt he is evading tax either. So instead of there being 500,000 suspects there are only some 3,000.
Excellent Richard. You have hit the nail-on-the-head.
Yes there is a deliberate plot to avoid investigation into tax evasion/avoidance despite the huge (unpaid) tax yield yet be harvested. And there are certain factions inside UK government with vested interest in claiming the “problem” to be far smaller than it is.
Influential persons inside the “establishment” are able to apply “undue influence” to obstruct the HMRC from functioning without fear or favor to collect ALL tax obligations impartially from all. And as everyone knows the vital ingredients in this problem are situated close to the British coastline — the Isle of Man, Jersey and Guernsey.
A radical overhaul of these offshore-secrecy-jurisdictions should ensure that all taxes are collected in accordance with decree — with full and proper investigation by the HMRC into ALL those who do not comply with the law.
That this involves confronting the “undue influence” emanating from the “establishment” which has a vested interest in avoiding/evading tax via the continuing existence of the three “conveniences” offshore is at the centre of the problem.
HMRC has a real problem regarding the HSBC 7,000. It is clear that they will get no help from the Swiss authorities who have stated that they will not co-operate in any action started on the basis of stolen data. HMRC cannot rely solely on Falciani’s list because it is obviously stolen goods, and therefore inadmissible as evidence, if not under British law, then under European law. The ECJ would throw out the case in the time it takes to say ‘sausage’ in German.
The real issue for HMRC is therefore to find corrobarating evidence of what is contained in the Falciani documents. Not easy.
It looks like HMRC is trying to scare enough of the 7,000 to convince them to come forward. It is a smart tactic, but as things stand it is not obvious why any of the alleged evaders should do so.
HMRC need not provide a reason for starting any tax investigation of any sort.
So, without offering any explanation, the revenue can open an enquiry on any of these people’s affairs, demand records, including bank accounts, pursue them with regard to transfers of funds, undertake lifestyle checks, demand explanation for every single depositing their accounts, tear their business records to shreds, and so on
Of course there is no reason why these people should cooperate, but the Revenue has the complete right to give people hell if they have evidence that they have got offshore bank accounts that they are refusing to disclose, and then throw criminal charges at them when evidence is discovered. And that is exactly what they should do
Richgrd – I agree with you that this is what HMRC can, and in many instances should do. But as you well know it will be difficult to find enough admissible evidence to build cases that will stand in court, even more so when HMRC is unable to obtain the co-operation of the third country in which the tax offence is supposed to originate.
There is one question which you might help with: what would happen if these people used the ultimate get-out-of-jail card, i.e. simply left the UK?
and as you well know, the vast majority of cases do not go to court, people settle substantial sums because they realise that they are in the wrong and the evidence is compelling.
Richard – in this case the evidence will be very difficult to compile, but good luck to HMRC.
What baout about my question, any view you can offer?
Wrong
Easy to get
It just takes time
Maybe you’ve never done tax investigations. I have
Correction: HMRC has the identities of 500,000 overseas account holders, some of whom may be tax evaders, while the others may be (a) not currently resident in the UK (ex-pat workers, foreign office staff etc), (b) non-doms, or as is often the case (c) second home owners who use foreign bank accounts to settle local bills, pay standing orders etc. and who declare any interest on their UK tax returns.
Not what they’re telling journalists
And remember – even if some of that were true there will be vastly more people the Revenue don’t have the names of
But as ever you side with the criminal
Why is that? Do you have to be crooked to be a right wing blogger?
Nobody is siding with the criminal, merely reflecting the fact that at least one third of the people that I know well have had a valid reason to hold a foreign bank account at some time. I have had bank accounts in France, Belgium the Netherlands and the USA (all long since closed), so has my wife, so have my parents and her parents and so have many of the people that I have worked with, all for perfectly legitimate reasons. None,+ as far as I am aware, were used to evade taxes and for all I know, if any of them are still open they would quite likely be on HMRC’s list.
But you do, very deliberately, miss a fundamental point. Those you mention might all be non-domiciled, in which case they can, of course, hobbies accounts without necessarily having to pay tax on the resulting income in the UK (although I say necessarily very deliberately: constructive remittance is far more common than most people think). However, the number of people claiming to be non-domicile is very low at only just over 100,000 people a year at most. the revenue have a list of 500,000 names. My guess is they have already done some pre-vetting of those names (I hope they’ve done something with the time period during which they will really help the data). I presume that they have reached the conclusion that they have this number of names of people who are domiciled in the UK, resident and board narrowly resident, and it will not declare the incoming question on their tax returns (which is a very simple exercise to check: the income would have to be shown on the foreign pages and if there are none in a tax return the data has, almost by definition, been misdeclared, or excluded).
So your logic, as ever, fails to stack.
Worstall reckons your making the numbers up
Worstall is a constant source of drivel with such an obsession with commenting about my blog that it makes me worried about his well being
you’re!
What sanctions do you suggest if there are indeed 500,000 tax evaders? Or half that number. Or a quarter.
Current UK prison population is around 85,000 with around 2,000 spare places. With a court system/legal aid already stretched for crime generally (not just involving tax). And even if there was £££ available, are there sufficiently qualified judges to handle the caseloads?
I would be understating things to suggest there are serious capacity issues beyond those of the HMRC. I assume you are not suggesting HMRC should be judge and jury for evasion cases, or that accused persons should be denied due process.
Not trying to excuse what they are doing – they are committing crimes. But if there is a law which holds 500,000 (nearly 1%) to be criminals, frankly it is the law that has the problem, not the people. Would there be public appetite for trebling or quadrupling the prison population with tax evaders?
Your question is naive, if you do not mind me saying so.
About 99%, or more, of all tax investigations in the UK are settled without recourse to criminal prosecution. That is because a civil settlement is agreed. The tax is paid, interest is added, and a penalty is charged. The penalty depends upon the severity of the action the taxpayer has taken to avoid the obligation to pay tax, the degree of cooperation that they have shown during the course of an investigation, and an assessment of whether they were deliberately culpable for the non-payment, or whether it was the result of an error. So yes, as a matter of fact, HMRC are the judge and jury for the vast majority of evasion cases, and that is the way that our tax system has always worked, and rightly so. There is very good reason for people’s acceptance of this fact. People are extremely reluctant to go to court to have their cases tried. They pay to avoid the publicity.
As for your argument that because 1% commit crime there is therefore fault in the law, please do not be absurd, bordering on stupid. Does that mean that we should have no parking regulation? And does that mean we should not have speeding fines? These two are also settled without criminal prosecution arising. You are such making claims that have no substance. I’m interested in delivering pragmatic justice, and that is what the tax system can do already if, but only if, it is properly resourced. Those resources are what are required, not additional courts (although I would add, as a matter of slight deviation that I do oppose the cuts in the court system that are currently being made).
My guess is that you might find 600+ of members of the House of Commons and 750+ members of the House of Lords amongst them. But that still leaves a lot to form a high proportion of the top bracket earners in the UK.
Oh you cynic
Now more than 500 in each, I suspect….
R
I’m prepared to believe that there are half a million UK residents with overseas bank accounts. Most of these will be in Ireland, Poland, and in India or Pakistan, where significant numbers of people have family ties, savings, and business interests.
I would be surprised to hear that the number of Swiss account holders is in the hundreds of thousands: the headline numbers are certainly ‘hype’ and probably hyperbole.
Nevertheless, your underlying comment is valid: very little is being done, and I am left with a clear impression that going after the very rich – or privileged clients of the big accountancy firms
– is a career-limiting move for a middle-ranking revenue investigator.
And I must declare a personal interest: my marginal rate of tax is now 60%. That makes me a high earner – but less than halfway to the threshold where offshore trusts and Swiss accounts become affordable and economically-attractive. In short, I’m paying more because even higher earners (and large companies) are paying less and being let away with it.
There are worse things. Imagine being (say) a pharmacist who now runs three or four branches; he’d earn as much as I do, but his largest competitor pays next-to-no taxes at all. Or any professional high-earner up against the consultancy arm of a Big Four accountancy firm. They get hit twice over: taxed in full, and competing against businesses that pay a nil or negligible rate of tax on their distributable profits and their senior managers’ pay and benefits.
If you were in the same position, you might count your blessings to enjoy that same ‘high earner’ income. But it would grate, just a little, to see people spending money in a high-street chainstore that pays no taxes, if you were in the same position.
But as both Labour and Conservative politicians seem quite happy to look away from the collapse in tax compliance that has happened ‘on their watch’ while, presumably, not asking impertinent questions of their lobbyists – or their hosts, when family friends take them on holiday on the yacht – I see no prospect of this ever changing.
I agree, of course, with much of what you say. However, I think you will find that the revenue explicitly put out the estimate of 500,000 accounts because that is exactly what they have: an estimate that they hold 500,000 names of people who will hold accounts in tax haven locations, not in the places that you name. This is inevitable because the source of this information is largely the data that they secured from UK banks on such accounts held in tax haven locations. Therefore I think you are wrong to say that this is hype: I suspect it is the truth, but what is also clear is that their willingness to address the issue is not nearly as strong as their hyperbole, and that is worrying, and I agree with you.
Richard – the vast majority of the offshore accounts maintained with the main UK banks that HMRC obtained data about were with branches of these banks. By definition this excludes all of their operations in Switzerland and various other countries with strict privacy laws, because these jurisdictions require that the UK banks establish a local subsidiary, which is then subject to local privacy laws and other regulations. The 500,000 will not include a single Swiss account for instance. I suspect it will however include quite a few accounts in the Channel islands.
They would all be better moving their accounts to Singapore, no retention tax, no EUSTD, better regulation
This would result in the welcome demise of Jersey, the Isle of Man and Guernsey as offshore-secrecy-jurisdictions but would provide no answer for the huge amount of evaded/avoided tax that the UK Exchequer loses every year.
Also it is not difficult for Singapore to claim better “regulation” as most offshore tax havens can not even spell the word.
Er…don’t the HMRC already have the details of all UK-resident accountholders of bank accounts in Jersey, Guernsey and the Isle of Man? That information had to be supplied last year. Its therefore now just a case of what HMRC do with that information. They no longer need to “find” the Crown Dependency bank accounts. Its the Swiss accounts which they don’t have the info for.
That’s news to me, HMRC and the Channel Islands, I’m sure
It wasn’t news to my bank in Jersey who wrote to me saying that HMRC were asking for this information and that if it applied to me, that I should tell them.
I filled in a form on t’internet at HMRC that I had such an account but that I owed them bugger all from it thank you very much. That was the end of the story. Unless of course I”m on the list.
I would think that that is where alot of these account names must come from. Whether a larger number has been whittled down to this number or not, who knows. I wouldn’t imagine the majority of people with offshore accounts evade tax, and the number of 500,000 seems like it would be a pretty large proportion of the number of UK people with such accounts.
I guess I’ll have to wait and see if I ever get a letter about it.
So you opted for declaration under the European Union Savings Tax Directive
That does not mean HMRC automatically knew about your account
You chose to tell them
They’re worried about the 50% of account holders who do not
Please don’t extrapolate what you did to the world at large
As someone who is involved in this work then I’ll start by sayin I AGREE wholeheartedly with what Richard says – take it from me ladies and gents, HMRC have this information, it is reliable and it points to varying degrees of tax evasion.
Why isn’t HMRC doing anything so far with it, or not enough? Well the Disclsosure Facilities have flopped because of this very problem – the man or woman in the street doesn’t fear detection if they don’t come forward – needle in a haystack time for them so they keep their heads down.
What do HMRC do? Most Inspectors I know (and I know very many) would love to get their hands on this informatin but they can’t because of internal politics, inertia and mismanagement. The reason management don’t address this is because the decision makers don’t know what they’re doing, they don’t come from an investigative or operational background and therefore resist what most experinced Inspectors tell them are common sense solutions!
“internal politics” like undue influence applied by high-ranking fat cats.
My wife works for a small firm of chartered accountants. Until around two years ago they did a steady amount of work representing clients whose affairs were being investigated by HMRC with a fairly reliable three or four new cases kicking off each year.
But for the last two years – nothing. Not a whisper of a new investigation. Either her clients have all simultaneously turned into angels or RM’s suspicions about HMRC’s management and motives are well founded.
Time for a few Freedom of Information or Parliamentary questions on how many new cases have started recently I think.
Or alternatively, they have “gone straight”? Even assuming there was anything to this investigation, are you saying that people never ever clean up their act? They never stop offending?
Not that persecution by the Inland Revenue is proof of wrong doing. The fact that the government works over someone once or twice, or even for a few years in a row, does not mean they are guilty of anything.
As another Chartered Accountant of long experience can I just say the Conspiracy theories do not apply
overmuch to HM Revenue & Customs, their indaquacies are mainly because they are an organization in turmoil, and basically not fit for purpose. They have some good people but increasingly fewer of them.