Tax Research UK

Unthinkable? Hiring more tax inspectors | Editorial | Comment is free | The Guardian .

The Guardian picks up ion the PCS campaign to hire more tax inspectors - to which I have contributed, saying:

Bingo! A particularly unpopular notion at an especially unlikely time.

Yet hiring more inspectors would be a smart move in these straitened times – the kind of spending that could pay for itself.

Most companies see the men and women who bring in revenue as being vital to their business. But at Her Majesty’s Revenue and Customs there is a chronic shortage of staff, which has got far worse in the cuts.

The Guardian’s Tax Gap investigation last year quoted an HMRC source’s estimate that there were “less than 100 inspectors actually tackling avoidance, against thousands of professionals advising companies on how to do it”.

Which is precisely the point: the government is outnumbered and under-resourced compared to the City accountancy firms that help businesses and wealthy individuals to reduce their tax bills. Inspectors still in public service know that they could almost double their salaries by turning private-sector poacher. Hiring more tax inspectors is about improving the public finances in a fairer and more imaginative manner than merely slashing spending.

Governments often talk about getting more cash by tightening up on tax collection; but they can’t do that without the people.

The logic is unassailable.

Richard Murphy HMRC

I’ve written a new report under the above title on behalf of PCS – the union that represents more than 80% of HM Revenue & Customs’ staff.

As the executive summary says:

The UK has been in recession, and may well be in recession again soon. Through no fault of its own, the income of our government has collapsed whilst its obligations have increased. A gap between government income and expenditure of up to £175 billion a year has emerged as a result. This though is not a spending crisis: this is an income crisis.

This report argues that the scale of that income crisis is being increased as a result of policies being pursued by HMRC. Those policies were created before the onset of recession. They have two aims. The first is to cut over time the number of staff engaged by HMRC by 25,000 – 17,000 have already left. The second policy is to close many of the local tax offices from which HMRC used to undertake its work in local communities. Over 200 offices have either closed already, are about to close, or are under threat of closure. It is fair to say that all offices are under scrutiny. When the programme is complete some people in the UK will live more than 50 miles from their nearest tax office, making it impossible for many of them to turn to this natural source of help and advice when seeking to fulfil their obligation to pay tax. In addition, HMRC are about to press ahead with the closure or severe reduction of its drop-in enquiry centre facility, which has previously provided a local and immediate tax advice service for both members of the public and tax professionals.

As this report also notes, too many people do not pay the tax due by them in the UK. HMRC have estimated the ‘tax gap’ in the UK – the difference between the tax they think is owed and the tax they actually assess – to be about £40 billion a year. We argue that this dramatically underestimates the total tax gap, particularly with regard to tax evasion.

To data previously published by the TUC which estimated total UK tax avoidance at £25 billion we now add an estimate of £70 billion for tax evaded within the UK. We can provide detailed and precise workings for this sum and also outline why the estimates of this sum produced by HMRC and the National Fraud Authority inevitably understate this figure.

When the total outstanding debts now owing to HMRC are added to these two sums, which when last estimated was £28 billion, we suggest the total tax gap in the UK is now likely to exceed £120 billion.

It is very obvious that the UK cannot afford this tax gap. It is equally obvious that if investment were made in additional resources for HMRC then this tax gap could and would be substantially reduced.

In arguing this we make the following points:

Recommendation 1: The basis for estimating tax avoidance should be revised to use a definition widely recognised in society and which correctly reflects areas of continuing policy concern as well as those abuses making use solely of artificial arrangements.

Recommendation 2: HM Revenue & Customs should be required to prepare estimates of evasion of direct taxes on a “top down” basis, as they do for indirect taxes.

Recommendation 3: H M Revenue & Customs should recognise that their existing bottom up methodology for calculating the tax gap for direct taxes will inevitably seriously under-estimate the size of that estimate.

Recommendation 4: HM Revenue & Customs should recommence publication of the many statistics on taxation produced by the former Inland Revenue which have ceased to be available since its demise, the lack of which make objective appraisal of the performance of the tax system hard to achieve.

Recommendation 5: HM Revenue & Customs should engage more staff to tackle tax avoidance and tax evasion.

Recommendation 6: HM Revenue & Customs must on occasion select cases for investigation without consideration of potential tax yield, and make clear that this happens to protect revenues from those on lower levels of earnings.

Recommendation 7: More staff should be engaged to scrutinise tax repayments before they take place.

Recommendation 8: More staff should be engaged to recover tax debt owing, and limits on sums to be pursued for collection should be lowered considerably.

Recommendation 9: The local office closure programme being pursued by HM Revenue & Customs should not just be stopped, it should be reversed. Tax must be seen to be collected in the community.

It is our firm believe that adopting these policies would highlight the true extent of the UK Tax Gap, provide the data needed to appraise progress in tackling it, and be cost effective methods of achieving that goal for al the reasons this report outlines.

I’ll be featuring more of what I say in this report over the next day or so.

The key issue is a simple one though: why, at a time when we need every penny of tax revenue we can get are HM Revenue & Customs doing everything possible to increase inefficiency in the tax system.

And remember – it’s not just me or PCS who are saying this. So too are the Treasury Select Committee. And I’d just point out that it’s not just PCS who are affiliated to the Tax Justice Network, so too are the Revenue & Customs’ group of the First Division Association of senior civil servants.

The Treasury select committee said, for example this week:

[HMRC’s Chief Executive] further that there was “lots of evidence” to show that HMRC’s anti-avoidance strategy was working. This is though not reflected in the Annual Report which records that it is too early to give an assessment of HMRC’s efforts to increase tax and National Insurance contributions actually received relative to the amounts that should be received.

And to reflect what I wrote on the lack of data and transparency from HMRC they also wrote:

As we have also previously noted, there is a similar lack of transparency in HMRC’s Annual Report on tax avoidance. In all, the Annual Report records no milestones against three out of the four [key] performance indicators .

Two reports happening to be in agreement does not say we’re both right. But I’ll venture on this occasion that we are.

Richard Murphy HMRC, TUC, Tax avoidance, Tax evasion, Tax management

The Guardian notes:

Morale inside Revenue & Customs (HMRC) is so low that government plans to tackle aggressive tax avoidance are in jeopardy, according to a report today by an influential group of MPs.

The Treasury select committee describes the situation as "dire" and "deeply troubling" and calls on senior managers to put in place changes "to ameliorate the situation".

In a report focusing on the workings of all departments under chancellor Alistair Darling, the MPs also warned that Treasury staff faced burn-out due to the pressures of handling the financial crisis while pressing ahead with "efficiency programmes".

"It is important that departments do not take this commitment for granted and continue to monitor for signs of burn-out and over-stretch," it warned.

I know some of these people. I know these comments are true.

One reason is obvious:

Cuts have left the department with 78,695 employees compared to almost 100,000 in 2004-05.

There’s not an accountant anywhere who has not moaned about the reduced quality of service that has resulted, and the significant increase in cost to society that is the consequence.

And Tory MP Michael Fallon was right to say:

“We are particularly alarmed by the low of staff morale and engagement at HMRC, and its effect on performance. We are deeply troubled by the apparent absence of any plan to ameliorate the situation, and call on HMRC management to re-double their efforts here.”

He also cited concerns that HMRC attempts to close a £7bn tax gap were being undermined by poor staff relations and a lack of clear data. He said: "The absence of regular public reporting on milestones by HMRC is a major obstacle to both effective scrutiny and performance."

Again, he’s exactly right.

As a report I have written for PCS on these issues will be saying, shortly.

Richard Murphy HMRC, TUC, Tax management

PCS are holding an event tomorrow putting forward a tax justice alternative to public sector cuts.

This event is open to organisations, politicians, trade unionists interested in moving forward the debate for a fair and progressive tax system.

Speakers include Mark Serwotka, Frances O’Grady assistant general secretary of the TUC, Richard Murphy of the Tax Justice Network and John Hilary director of War on Want.

The meeting is in Committee Room 11 of the House of Commons Wednesday 10 March 3pm-4.30pm.

I’m happy to support PCS in their call for reform in the way we approach the management of our tax system.

Richard Murphy HMRC, TUC

The following parliamentary question and answer were reported on 3 March in the House of Lords:

Question

Asked by Lord Oakeshott of Seagrove Bay

To ask Her Majesty’s Government how many taxpayers who are registered with HM Revenue and Customs as non-domiciled are (a) resident, and (b) non-resident, in the United Kingdom. [HL1128]

Answer

The Financial Services Secretary to the Treasury (Lord Myners): Reliable information is not available, as individuals are not required to report their UK domicile status or residence status to HM Revenue and Customs (HMRC) unless either is relevant to their liability to UK tax within that year.

Individuals who are resident but not domiciled within the UK (non-domiciles) do not need to inform HMRC of their non-domicile status unless it is relevant to their tax affairs in that tax year.

In the majority of cases an individual’s domicile status will make no difference to the direct tax they must pay in the UK. This is because an individual’s domicile status is mainly relevant for income and capital gains tax purposes when an individual has foreign income or foreign gains, for example from overseas investment or employment. Where this is the case, UK residents may need to complete supplementary pages to the main self-assessment tax return. Many such residents pay tax on these income and gains on the arising basis so their domicile status is not relevant to their tax affairs. However UK resident individuals who are either not ordinarily resident or are not domiciled within the UK may use the remittance basis in respect of their foreign income or gains instead.

Following the changes introduced in Finance Act 2008, many of these individuals will now have to complete a self-assessment tax return to use the remittance basis (with some minor exceptions for lower-income or migrant workers).

Prior to the Finance Act 2008 it was not always necessary for individuals using the remittance basis to complete a self-assessment tax return. Similarly those individuals who did complete a self-assessment tax return did not always need to say whether they were using the remittance basis because they were non-domiciled in the UK or because they are not ordinarily resident in the UK. In 2006-07, 86,000 individuals filed a self-assessment tax return on the basis that they were non-domiciled in the UK. This is the latest year for which data are available.

UK residents who are non-domiciled may also make lifetime transfers into trusts with inheritance tax due at 20 per cent. To do so, they must inform HMRC of their domicile status. This information is not centrally collated by HMRC’s systems.

With some minor exceptions non-UK residents do not generally pay UK capital gains tax. They pay UK tax on their UK source income, although this may be relieved under a double taxation treaty. There is generally no need for such individuals to inform HMRC about their domicile status; the remittance basis is only relevant to UK residents.

Some non-resident individuals will complete the non-residence pages of a self-assessment tax return and declare their non-resident status. There is usually no need for such individuals to declare their domicile status too, although on occasion some do choose to tick the non-domicile box. In 2006-07 30,000 taxpayers chose to declare themselves as non-resident and non-domiciled in the UK.

These individuals will broadly fall into five groups: those who are not resident in the UK but have investments here on which UK tax must be paid; those who have returned abroad from a UK employment assignment and have to file to pay tax on their final year salary; those with UK-source self-employment income from business trips (particularly if they come from a country with which we do not have a double taxation agreement); those performing in the UK as non-resident artistes or sportspersons; and those who making claims under double taxation treaties.

I find it incomprehensible that we do not have data from tax returns on this issue after 2006-07.

It is incomprehensible that we have no idea how many people have paid the £30,000 flat rate charge to continue using the remittance basis of tax available to non-doms.

And it is an indictment of the appalling state of published data available from HMRC that this question even has to be asked. The information they put into the public domain is abysmally limited in scope, and in many cases they ceased publishing data in 2005, when HM Revenue & Customs was formed.

How can we have an informed debate on tax without data?

HMRC really do need to get their act together.

Richard Murphy Domicile, HMRC

Labour plans crackdown on 90-day tax exiles like Mick Jagger and Jenson Button | Business | The First Post.

Gordon Brown’s government is set to crack down on Britain’s super-rich tax exiles, demanding they submit to a “statutory residency test” to prove they have truly cut their ties to Britain. The new rules, says the Guardian, could upset many of the country’s wealthiest business figures and celebrities, such as the property-owning Candy brothers who commute from Monaco, EMI boss Guy Hands who lives in Guernsey, and the Barclay brothers, who own the Daily Telegraph but live on the tiny Channel Island of Sark.

Good news if true.

Better news still if the Tories agreed.

And let’s be candid - ho are they going to disagree?

Richard Murphy HMRC

The Press Association: Top firms consider moving abroad.

According to the Press Association:

Half of Britain’s top 30 firms have looked at shifting their tax base offshore and a handful are actively considering such a move, it has been claimed.

The threat of an exodus that could cost the state billions of pounds comes a week before the Treasury is due to hold discussions over reforms to the taxation of foreign profits - a key area of contention for major firms.

Last week, Unilever and Diageo fuelled the debate by warning that they could move overseas if the tax regime worsens.

Of the top 30 companies in the FTSE 100 Index, 15 told the Sunday Times that they were keeping their tax domicile status under review. Three said they were actively considering a move.

There’s a problem with all this though.

First, all know HMRC is plannign to challenge anyone who claims to have done this.

Second, the move against tax havens is gathering pace - and those who think Ireland a panacea have to be deluded: the place is collapsing as a consequence of its tax policies.

Third, the claim that a 50% personal tax rate is driving this is ludicrous: we all know that the amount involved is, because the measure does not involve restriction in allowances and reliefs, regrettably small.

Fourth, The hype is over just three who are considering this: that almost certainly means none will go.

Fifth, Grant Thornton are a persistent hand in these reports. They are also a heavily biased firm, offering consistent support to the Tories. One smells blatant political positioning on their part.

In other words, this is all hype and nonsense.

Richard Murphy HMRC, Tax avoidance

Tax cheats like Jaswant Raykanda cost us 15 times more than benefit fraudsters - Investigations .

The Mirror states the obvious: tax cheats cost maybe a billion a year. Tax cheats cost many, many times more.

They have got the ratio wrong: it’s much more than 15 times more - and I’ll be publishing more on that soon I hope.

But this begs the question - why the costly emphasis on benefits when tax evaders are getting away with vastly more? This is mismanagement.

Richard Murphy HMRC, Tax evasion

Liechtenstein’s LGT sees positive 2010 inflows- WSJ | Reuters .

It’s reported:

Liechtenstein’s LGT Bank has had a good start to 2010 and expects “pretty positive” net asset inflow for the full year, despite ever increasing pressure on tax havens, its chief executive told the Wall Street Journal.

Liechtenstein’s largest bank, which became embroiled in a tax evasion scandal in 2008 after Germany paid a former employee for client data, has made an effort to become more transparent and is attracting client funds outside its home base.

All of which is amusing spin. The reality is something quite different. As anyone following UK tax amnesties knows, the terms of that offered to those with Liechtenstein accounts is much better than that offered to those without, and the incentive was created to therefore shift funds to Liechtenstein before fessing up to HM Revenue & Customs.

I put a very high bet on the fact that these inflows into Liechtenstein will soon all be flowing out to HM Treasury.

Which gives me some cause for pleasure.

Richard Murphy HMRC, Liechtenstein

High Court gives green light for offshore tax clawback - Times Online .

This is an important case for HM Revenue & Customs to win.

The core of the argument was that 2008 legislation that allowed the Revenue to backdate claims against an abusive form of offshore trust were illegal as an infringement of the human right to enjoy property.

The claimant took advantage of a scheme designed and marketed by Montpelier Tax Consultants (Isle of Man). The judge was told that he settled a trust in the Isle of Man, the “Robert Huitson Family Settlement”. The 2008 legislation means that Mr Huitson faces an overall tax demand in excess of £100,000 relating to the money he paid into the family trust back to 2001. As the Times notes:

Court documents reveal that 57 other scheme users say they cannot meet similar tax demands even if they sell all their assets, and another 29 could settle only by selling or remortgaging their family homes.

Several users also say that they face personal bankruptcy.

David Elvin, QC, appearing for Mr Huitson, said that the retrospective provisions of the 2008 Act affected 2,500 scheme users and involved £300 million.

He argued that the retrospective element of the legislation was incompatible with the “right to free enjoyment of property”, as protected by Article 1 of Protocol 1 of the European Convention of Human Rights.

However, the judge dismissed the challenge and ruled that HMRC had not acted unlawfully or disproportionately in backdating.

Several key issues come out. First, and as I have been arguing for a while, there is no right to enjoy property if the tax due when securing it has not been paid: the tow are indivisible.

Second, the Revenue do have the right to stop abuse even if theyu have to do so retrospectively.

Thirdly, and almost predictably it was one of the Crown Dependencies at the centre of this abuse, proving yet again they are secrecy jurisdictions.

Fourth, it is vital the Revenue do get cases like this in the press: I welcome the fact they have.

Fifth, the accountancy profession cannot be relied upon to uphold ethical standards or the rule of law. The Times notes:

Chas Roy-Chowdhury, of the Association of Chartered Certified Accountants said: “The case related to a particular trust arrangement but could have implications for similar offshore trust-based schemes.

“It is quite justified for the Government to attack complex schemes set up to avoid tax but it should not do it retrospectively.”

That’s a false argument: it’s just been ruled lawful to pursue tax cheats. the profession should be applauding, not condemning HMRC for doing so. Why is it that accountants are so keen to join bankers in the pit reserved for the pariahs in society?

Richard Murphy HMRC, Isle of Man, Tax avoidance