HMRC issued a breathy press release overnight saying:
HMRC has collected £1 billion in tax payments from users of tax avoidance schemes as a result of the government's new rules to collect disputed tax upfront, the Financial Secretary to the Treasury, David Gauke, announced today.
Well, maybe they have got £1 billion of cash in, and I will not complain about that.
But the accounting logic of this looks to be a little uncertain to me. As the release also says:
The Government introduced Accelerated Payments last year to radically change the economics of avoidance. Under these rules, disputed tax is paid up front by avoidance scheme users.
The money is now in the government's hands and not in the hands of the avoider. That may be good news, but what is clear is that as yet the ownership of the money is unclear.
HMRC has a good track record on beating avoidance at present - and again that is good news. But, and I think this important, the key words here are 'up front'. And 'up front'payments are not income. They are liabilities until the right to enjoy the money is proven.
It's a fundamental mistake to confuse cash with income. David Gauke is making it. A little more caution, and a little more effort to resolve the avoidance dispute might be wise. Until that is done this 'income' looks like a contingent liability to me.
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I won’t argue with you on the accountancy principles. However I wonder if the opposite political point might be made. I’d say this £1 billion is an outstanding success for the tax justice campaign. I’m sure the coalition would not have done this without the pressure. It gives the marketers of tax avoidance schemes an awkward judgment to make, to declare or not declare.
But HMRC is a very cautious institution, and it may be that a great deal more should have been collected upfront. HMRC only takes the money when in their very cautious judgement they have very little risk of losing in court. The avoiders can appeal that their scheme is sound and they should keep the money. HMRC will normally agree to this, and because of the cuts probably has insufficient manpower to give all such appeals the scrutiny they deserve.
Hurray! We’re saved! Only £55 billion or so to go. 🙂