The National Audit Office issued a report yesterday that suggested that one in three of the richest people in Britain is under investigation by HM Revenue & Customs with the total tax subject to enquiry amounting to £1.9bn. Headlines have followed.
There are issues to raise here. First, the fact that there has been only one prosecution resulting from investigations of the UK's super rich is staggering: it is very clear that there have been significant numbers of tax haven abuse investigations that have been settled by cosy deals sanctioned during the Hartnett era at HMRC that have left the impression that for tax purposes there is one rule for the rich and other for everyone else. This has been deeply damaging for the reputation of HMRC; for the perception of its willingness to act even-handedly, but most importantly for failing to provide a necessary deterrent. This remains a glaring failure in HMRC policy, because with statistics as stark as this and evidence of wrong doing as apparently available as it has been on tax haven abuse this failure can only be explained by policy.
Second, this gives a lie to the suggestion that many of the investigations are on issues of legal interpretation: this is the ‘polite' form of tax avoidance that HMRC suggests does not imply intentional wrong doing but mere technical difficulty in agreeing what is owing. I do not accept the explanation. Of course such issues can arise, and have in my own career as a tax adviser, but when they arise in the case of one in three taxpayers there are two possibilities. One is that UK tax advisers are so bad on interpreting on UK law that one third of their high net worth clients have got the law wrong despite buying advice (and we can be sure all the people subject to this investigation are ‘well' advised) or alternatively that the advice in question deliberately steered them into grey areas of the law. I strongly suspect the latter is the case and that the exploitation of uncertainty is deliberate. In that case attaching polite euphemisms to it is unacceptable.
Third, let's be clear that £1.9 billion is not going to be recovered: the actual sums paid are likely to be a lot less than that. And in the context of a total tax gap that HMRC say is £36 billion and which I think may be £120 billion because years after starting to supposedly measure such tax gaps HMRC still make up many of the figures relating to tax evasion and call them ‘illustrative estimates' a figure for £2 billion is really quite small. I am not saying that such issues should not be addressed: they clearly should be. But if the issue is serious enough to require its own unit it also needs penalties to match, including naming and shaming as a matter of course (a power available to HMRC but never seemingly used in these cases for reasons that need to be asked and which again indicate the presence of a policy decision), plus prosecutions.
And what the focus on the issue also suggests is that the much bigger tax gap problems, not caused by high net worth individuals, but where their abusive behaviour might influence that of others, is also overdue. The simple fact is that the tax gap persists (and is much bigger than HMRC suggest) because of a policy decision not to close it. This is achieved by denying HMRC resources. The aim is to deny the government tax revenues. The ideological reason for that is to support a shrinkage in government services. The aim of that is to encourage the transfer of the mechanisms of state to the private sector, as is being seen in education, heath and so many areas. And, of course, the goal is to also deny essential public services as well, as is happening.
Reports, such as the one I note from the NAO, have to be seen in this context. They imply something is being done. Don't be deceived. Not much is happening when so much more could be done to address this issue to national benefit. And that is by choice, at cost to most of us, at benefit to the abusers and most of all at the cost of diminution of the state.
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Brilliant Richard. I was eagerly awaiting your take on that announcement. Those dreaming spires have certainly sharpened your pencil.:-)
This is one of your most succinct, forensic eviscerations of government policy yet. Reading it felt like going 12 rounds in the ring – on the losing side!
It should be front page in the broadsheets and even more so – it should be the message being shouted from the opposition benches. Regrettably i can’t see Corbyn doing his ” I’ve had a letter from a Mr Murphy of Norfolk”, reading out the above, and then asking the PM at pmq’s ” why, if this government is ruling in the interests of the many, not the few, does she persist in having policies that are so evidently a corruption of the will of Parliament and the people?” Fat chance. My only hope is that some of her own backbenches are feeling punch-drunk as a result of this.
Pity your are not a speech writer.
Oddly, I noted Owen Smith (remember him?) retweeted it
The number of prosecutions may be so low because of the Hansard Extract (which has been government policy for years).
See: https://www.kinsellatax.co.uk/information/serious-fraud-investigations/working-methods/opening-interview/interview-format/hansard-extract/
“[The HMRC] will accept a money settlement and will not pursue a criminal prosecution, if the taxpayer, in response to being given a copy of this Statement by an authorised officer, makes a full and complete confession of all tax irregularities”
This looks like some form of ‘marketisation’ to me that goes too far. And it is an unfair distinction between ‘white collar crime’ and other areas of the law as in ‘ you’ve been a naughty boy and since you are have enough money and are a certain social class you can buy yourself out of trouble instead’ approach.
It explains why we send people to prison for not paying their TV license instead.
Let’s face it: if you know that tax is due, stop messing around and pay it.
And if you don’t then face the consequences. There are too may grey areas in tax law and the penalty system is one of them – it’s too ambiguous. And if we are going to allow it to be, then lets roll out ambiguity across the whole of the legal system – just to be fair.
As someone who has gotten myself the out of jail card by tsking fullest advantage of the LDF and ” Rubik” ….. I fully agree with you.
380 staff and an annual wage bill of £15 million; thats an average £40,000 annual cost per staff member inclusive of employer’s oncost.Can this be correct? How would this compare to the fees being paid to those conspiring with the tax avoider / evader to keep one step ahead of HMRC in their relentless efforts to thwart the intentions of the legislator?
Can we ever win the “exploitation of uncertainty” game if we do not outgun the opposition. Why should society bear the cost of this ongoing war with the immoral?
First question I would ask is – is this a conspiracy (ie not the taxpayer acting alone but several persons acting to construct a scheme) to thwart the intentions of the legislator. If the answer is yes then I would impose an administration charge pro rata to the tax being avoided/ evaded.
Richard, is a GAntiP the answer? Becky Long-Bailey made reference to this in her conference speech.
It would help on avoidance, I am sure
But it does not tackle the big issue of evasion
And evasion? Country by Country reporting and better policing (HMRC)? Sounds simple…
That will help
But only help
Someone actually has to be there to use the data