We have been used to talking about tax avoidance as a focus for the UK Tax Justice campaign for a long time now. Companies like Google, Amazon and Starbucks have become well-known for the attention that they have received, and around the world these companies are now amongst the best known tax avoiders as a result. At the same time it has been UK tax justice campaigners, whether people like me, or in the trade union movement, or in UK NGOs, who have drawn tax abuse through tax havens to the world's attention, and as a result action on both tax avoidance and tax havens is now taking place.
But, as I've argued in my new report for PCS,whilst tax avoidance is important, and may cost the UK up to £20 billion a year at present, this figure has fallen, in my estimate, since 2008, and there are signs that it may fall still further. No company wants to be the next Google and have their name all over the papers and there is absolutely no individual who wants to be linked, as Jimmy Carr and Gary Barlow have been, to tax avoidance arrangements. As a result I have some agreement with tax barrister Jolyon Maugham, who writing in the last day or so, has said:
On personal tax avoidance, in my opinion, the heavy lifting is done. ... I do not see scope for significant further receipts. On corporate tax avoidance, the ability of any Government to act is a function in large part of matters outside its control. We must await development and implementation of the OECD's BEPS project.
Whilst the BEPS project is important it does not offer unbridled hope, but based on my belief that the risk climate regarding tax avoidance has changed, and the fact that falling tax rates have reduced the losses (as I noted in my PCS report) and the fact that, as Jolyon has argued, the GAAR (inadequate as it is) plus the ability to recover tax in dispute direct from bank accounts and the right to issue follow on orders to those who have used marketed tax avoidance schemes have all changed the prospects of tax collection success in this area. Whilst the need for vigilance on tax avoidance has not gone, and some whole areas (as outlined in my PCS report) have yet to be tackled, there is no doubt that the balance of risks has changed here. Put bluntly, campaigning has worked and legislation has followed in its wake. That's a cause for some celebration, but no back pedalling.
On tax evasion however the situation is very different. I estimate the loss to evasion to be in excess of £80 billion a year. HMRC think it only just over £20 billion. We are polls apart. Jolyon Maugham, without endorsing my data, says:
The battleground, now, is moving to evasion.... Tackling evasion is inevitably manpower heavy and I cannot see how HMRC's capacity to close the tax gap in that field can have survived the significant cuts in HMRC staffing levels.
Andrew Goodall, a journalist and (importantly in this context, a chartered tax adviser) has tackled the same issue at AccountingWEB. There he reports the comments of Stuart Jones, a Lake District based chartered accountant, who I have long felt to be the sort of accountant every small business needs:
Kendal-based chartered accountant Stuart Jones wrote: “I can only comment on the microbusiness sector but evasion is rife. A tax office in every large town meant that HMRC staff saw what was happening locally. Nowadays it's open house for evading VAT, income tax and national insurance contributions (while at the same time overclaiming tax credits) by being part of the cash economy. Businesses never register with HMRC, companies are struck off without any objections from HMRC, the list is endless.”
Jones added: “Politicians must address HMRC staff levels immediately.”
He told AccountingWEB today that HMRC “has all the tools to tackle evasion, but doesn't have the staff”.
I think Stuart is right. HMRC might have told AccountingWEB yesterday that my PCS tax gap estimate is “over-inflated, flawed and muddled” but the fact is that they face a fundamental credibility issue in doing so, which is that they estimate the tax gap on errors in the tax returns they get and I look for the evidence of the money that never gets near a tax return that is sent to them - which Stuart Jones suggests is commonplace.
I'm not saying we need to forget tax avoidance or offshore but as I have pointed out to quite a number of audiences now, next year HMRC will get more information from banks in Cayman, Jersey and the Isle of Man on the operations of companies owned by UK resident people in those places than they will get from Barclays, Lloyds, HSBC and Santander on the operations of companies owned by UK resident people in Norwich, Plymouth, Cardiff, Aberdeen and Derry. That is, to put it bluntly, completely ludicrous.
The battle for automatic information exchange, from banks, from estate agents, from companies themselves and from financial services providers has to shift to the home front now so that tax evaders get fewer places to hide here in the UK in future. And that battle requires staff in HMRC and Companies House. Professionals in the tax profession can see that. PCS staff in HMRC know that - or they would not keep asking me to write reports for them. And yet HMRC and our politicians do net get the point. It's time they did. Because some of the steps I recommend have the power to transform our economy. And that's why we need to get on with tackling tax evasion, now.
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It’s worth pointing out that from the coalition government’s point of view HMRC is now ready for much bigger cuts. They claim that HMRC was partially exempted from the deep and damaging cuts inflicted on the rest of the civil service. That they were some how “re-investing” potential “savings” and using these funds to tackle evasion and avoidance.
This was always a lie. At best it meant that where another department suffered cuts of x% HMRC would still suffer cuts of a smaller %, and it still left the diminished department in a state of crisis, barely capable of carrying out its core functions.
Howevr the period of this “re-investment” is now running out. If there is no change of direction HMRC is due to be subjected to far deeper cuts.
I agree
We have really seen nothing yet
There will be massive numbers of office closures and staff numbers are likely to fall to well below 50,000
http://www.cityam.com/1410197901/taxman-s-revolution-hmrc-setting-pace-digital-government-reform
Not to worry its all going digital !
We’re all going to have to ask the computer to say yes
“And yet HMRC and our politicians do not get the point.”
I’m afraid I disagree, Richard. I know you have contact with politicians and the like, whereas I don’t, but you would have to lack pretty much every human faculty not to be aware of tax evasion and its scale and scope.
Let’s be frank about this, a blind eye is turned because so many people are either directly or indirectly involved (eg. if they don’t participate someone they know or associate with does); actually or potentially benefit in other ways (eg. cash in hand gets you a cheaper price for work); or are so rich and powerful that they can ensure those that should be taking action keep steadfastly looking the other way (eg. the current situation with the 1% and our policy makers).
Tax evasion and the way it is (isn’t) dealt is so entrenched and culturally accepted that its part of the DNA of this country, (to use an expression much lampooned by Private Eye), and many, many others.
Ivan
Good point
If they do get the point – and I suspect many do – they are frightened to make it
They know it is so entrenched in what they think the ‘white van classes’ (I have heard the phrase used) that they will not address it
Since that bis deliberate it is an issue they need to be called out on
I will
Richard
I should also have qualified what I said further, by pointing out that the three “rationales” for not doing anything are not exclusive. There will be some people/organisations who “enjoy” all three. But yes, keep hammering away.
It is interesting that, when you read the comments at the bottom of online newspaper articles, there are always complaints that HMRC aren’t dealing with big companies and their international affairs but are instead ‘wasting their time’ clamping down on Joe Plumber sole trader for fiddling sales etc.
What these comments often ignore (probably due to the path down which the media has taken the evasion / avoidance debate over the last 5 years) is the following:
– What Joe Plumber is doing is actually evasion as opposed to avoidance which, in theory, should be an easier HMRC win (i.e. less risk of court defeats, or influencing others to not use legal loopholes etc).
– In an age of HMRC staff cuts and centralisation, highlighting the clamp down on Joe Plumber is one of the only tactics HMRC can currently implement (hoping that consistent press coverage will influence other small businesses to believe that HMRC will find them and that they should therefore act legally in all their dealings).
– The impact of small company / sole trader tax evasion, whilst individually small, is hugely significant when taken as one
I would be really interested to see if there is a concerted media push towards tackling small-scale tax evasion as you have discussed, but I don’t think it is ‘sexy enough’ to hit the headlines (unlike the very big figures and familiar names involved in corporate business structuring).
The aim is to make it ‘sexy’
I can see the headline now… Dave from Scarborough in £2.50 tax scam.
The text… Electrician Dave claimed his jeans were protective clothing. On further inspection, there were no knee pads.
HMRC spokesman ‘We know who you are, and if you’re wearing the wrong trousers, we’re going to get you’.
Very politely, stop being stupid
Have you made any progress in influencing the Labour party to include in its 2015 manifesto that Tax Evasion will be pursued by a fully funded HMRC?
Some
Yes