The National Audit Office published the following key facts in its report on H M Revenue & Customs's management of marketed tax avoidance schemes:
I hate to say it, but I think these facts are misleading.
First of all, the figure for individual tax avoidance in HMRC's latest tax gap estimate is £2.1 billion. It was £1.9 billion in 2009-10, they say. They do not give an avoidance figure for small companies, but total losses to them are only £1.4 billion: by no means all of that can come from these schemes any more than all the losses from individuals can. If that were true the enormous losses from other tax avoidance (let's start with IR35 arrangements, for example) would simply not be in the data at all. But if we attribute half of the HMRC acknowledged losses to marketed schemes we still come up with, for this sector, £1.75 billion of losses attributable, according to HMRC, to such schemes annually. However, with £10.2 billion at risk that is 5.8 years, on average, of losses still to deal with. And the DOTAS scheme, under which such losses are identified has only been doing since 2004. That means so far 75% of all identified losses have not yet been addressed.
That's not enouraging, is it?
Nor is the fact that if you do a simple calculation - dividing £10.2 billion by 41,000 - you find that the average sum lost per scheme participant is a staggering £248,780.
Now, let's put this in perspective. A senior tax inspector can earn around £60,000 a year - although many earn less. HMRC's accounts show that, at most, staff costs were only half of HMRC spending in 2011-12 (although their accounts are designed to make that as hard to find out as possible). So total overhead costs included a tax inspector costs £120,000 a year. That's half the tax lost to each one of these cases.
Now, doesn't that mean that employing a rather large team of tax inspectors to tackle this problem makes sense?
Why isn't HMRC doing it?
And why, if as the NAO admits, total losses to tax avoidance are much more than those agttributable to such vases, isn't HMRC allocating considerable resource to other abuse as well?
Surely the time has come when the glaringly obvious fact that we can't collect tax without employing enough people to do it has to be recognised?
And at the same time, why not recognise the real true scale of the problem?
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I’m not sure that doing a ‘simple calculation’ is helpful (NAO’s fault that it doesn’t work, yours for going ahead and doing it anyway). Based on figure 3 data, I got this far:
Big number = tax at risk; next = users; last = ave value
Partnership loss £3,500,000,000 14,000 £250,000
EBT £1,700,000,000 3,400 £500,000
E-t intermediary £600,000,000 16,000 £37,500
Int relief £1,100,000,000 900 £1,222,222
SDLT £500,000,000 6,600 £75,758
Total : £7,400,000,000 40,900
That leaves £2.8bn of at risk tax unaccounted for, and 100 more cases to hit the 41k – they’d be worth £28m each. I’m not quite sure what the NAO data does support, but it’s not the £248k figure.
Of course it’s an average
And of course you wouldn’t target them all at once
But it is a fair average
And it illuminates the scale of the issue
That’s its purpose
And it does the job well
Your data makes clear you’d be selective where you put people. And of course I would be if in charge
From NAO/HMRC’s broken down figures – total tax at risk £7.4bn, across 40,900 cases. (No, I don’t know where the extra £2.8bn tax comes from either). That’s £181,929 each. Your £248k figure overstates the average by 37%; using (and repeating) it lays you open to attack for manipulating figures just to create shock tactic headlines.
I quoted their numbers
You extracted some data of your own choosing
I even copied the source….
You’re the one making it up
No, I’m the one who read the report. Look at Fig 3, on Page 13 of the report.
I quoted their numbers.
You extracted some numbers of your own choosing
I can’t paste the source into your comment form, but READ THE REPORT; I did my best to point you towards it.
No, I don’t know why the NAO numbers don’t tie together, but don’t accuse me of making stuff up until you’ve checked it yourself. They have a £2.8bn gap in their own analysis; my guess (but I couldn’t work it out from the report) is that the balance is what’s at risk from currently unidentified cases – we don’t know how many of those there would be.
I copied their headline data
Sorry….no way am I changing because you read an extract – which I can see and does not claim to be representative of the whole
We must agree to disagree. That ‘unrepresentative’ data extract covers 40,900 scheme users. Looking again at their wording, perhaps the £2.8bn is on “smaller” schemes, as Fig 3 only covers the largest. Either way, I fear you’ve calculated an average using two different numbers, so it’s not really a valid figure. FWIW, I’d have said that having 41k people who owe £180k each is bad enough.
Let’s agree to differ
Surely the problem here is not that there aren’t enough tax inspectors to look at it (not that more couldn’t help) but that without a GAR as you propose, every scheme would have to end up going to court for a decision.
The amounts involved here are staggering esp when you consider they are for individuals and small businesses.
[…] being sacked at HMRC the chances of losing from using such schemes are low. And when there are 41,000 cases outstanding, they’re almost certainly right to think […]
[…] thought the astonishing average £248,780 cost of each tax avoidance case identified as outstanding at H M Revenue & Customs by the […]
My guess is that the salary for senior tax managers and partners in the Big 4 and other tax advisers is going to be somewhat higher than £60,000 – is it any wonder then that poaching is so much more attractive than game keeping – surely even the Tories can understand this. Perhaps if I were to set up an outsourcing firm specialising in tax collection they might understand.
Richard, any idea how widespread the use of employee benefit trusts are in football? Given the salaries, image rights payments etc in that sport, the amounts involved could be enormous?
Widespread
Liverpool is thought to have been a big user