Yahoo News appears to be just about the only media with this news story this morning:
Tax dodgers will be targeted by Rachel Reeves, who will say she “will not tolerate the minority” who avoid “paying what they owe”.
The Chancellor will announce that a further 200 new compliance officers have been offered roles at HM Revenue and Customs (HMRC) to begin in November as part of a plan to recruit 5,000 more taxmen over five years.
The move is part of a plan to close the £39.8 billion “tax gap” between what is owed and the amount actually collected.
Politely, this is pathetic.
As I noted in the Taxing Wealth Report 2024, the reform of HMRC needs to be radical. Two hundred new compliance officers and 5,000 new staff will not solve the problems with the under-collection of tax in this country, which Labour appears no more interested in solving than its predecessors were. The reasons for this are very hard to fathom unless they think that tax abuse is of benefit to society: the reforms I suggest are bound to pay for themselves despite costing at least £1 billion a year.
The reforms I proposed are comprehensive. I said this in my summary of them:
- HM Revenue & Customs governance structures are no longer fit for purpose. They are based on the ethos of a public company and are focused almost entirely on meeting the needs of large companies and the wealthy. Both sectors are well represented amongst its non-executive directors; no other group in society is. That is no longer acceptable.
- HM Revenue & Customs has for too long emphasised cost control as its focus of concern rather than serving taxpayers or raising all the revenue owed to it. This has been inappropriate and has prevented the creation of a tax system suited to the needs of society in the UK.
- HM Revenue & Customs' drive to reduce the cost of collection of tax in the UK has largely failed but has as a consequence:
- Seriously reduced the quality of service that it supplies to taxpayers in the UK, with the quality of everything, from face-to-face services to the answering of telephone calls, to the time taken to reply to letters, all deteriorating significantly leaving many taxpayers without any of the help that they need to pay the right amount of tax that they owe.
- Seriously reduced the number of staff at HM Revenue & Customs.
- Reduced the average real pay of staff at HM Revenue & Customs.
- Considerably reduced the number of tax investigations undertaken each year.
- Lost control of some major parts of the tax gap, which is the difference between the tax that should be paid and the tax that is actually paid in a year.
- Tax gap measurement has been used by HM Revenue & Customs' management as the indicator of its success, but as has been explored in other parts of the Taxing Wealth Report 2024, the claims made with regard to the tax gap in general are open to question.
- One of the two tax gaps where it is very apparent that matters have got out of control is that for small companies, where around 30 per cent of corporation taxes owing now go unpaid each year, which is way in excess of any reasonable level of loss. The likely annual cost of this loss is now £5.9 billion per annum.
- Another tax gap that is likely to be out of control is that for the 5 million small businesses that pay their taxes via the income tax system. HMRC say this tax gap has fallen from around 32.5 per cent of these taxes owing going unpaid in 2014 to only 18.5 per cent being unpaid now. They have not, however, provided any convincing reason for this improvement in taxpayer compliance, which is not matched by improvements in equivalent rates for small companies or in the overall rate of timely tax return submission, half of which returns come from self-employed business owners. The claimed current rate of loss is unlikely to be realistic in that case and an excess loss of maybe £3.4 billion is likely to arise as a result in this area, largely because HMRC has withdrawn from local tax offices that previously supported these taxpayers and from active monitoring of their onsite activities through their now largely abandoned programme of business compliance visits.
- In combination, the losses from just these two tax gaps amount to maybe £9.3 billion and can be attributed to HM Revenue & Customs mismanagement of its activities in the community, whether that be through maintaining local offices where face-to-face help is available or by visiting businesses at their own premises.
- It also seems that HM Revenue & Customs' claims for the benefits of its Making Tax Digital programme seem to be seriously overstated, which is a fact repeatedly noted by the House of Commons Public Accounts Committee. The costs of creating this programme appear to be out of control. The costs it imposes on business taxpayers are excessive. Worst of all, it is likely to alienate millions of people from the tax system and most likely increase the tax gap as a result, rather than reduce it. It also makes the UK a significantly worse place in which to run a business, which is likely to impose serious costs on society at large.
- As a result, this report recommends that:
- That HMRC reforms its governance structures and objectives.
- HMRC restore its local office help centre presence in towns and cities across the UK, and widely advertise the availability of this support service.
- HMRC's should restore its programme of site visits of businesses to monitor their tax compliance to cover checking both PAYE and VAT records.
- HMRC should stop the rollout of its Making Tax Digital programme so that no business that is not VAT registered will never be enrolled in this programme.
- The cost of restoring these services will be very much less than the sums that might be raised by reducing the two gaps that have been noted to reasonable levels (i.e. those that were maintained during periods when HMRC was better resourced in the past), but since some of those sums capable of recovery have already been noted elsewhere in the Taxing Wealth Report 2024 no additional account of such recovery is made here. That said, because other tax gaps would also undoubtedly improve if HM Revenue & Customs were to re-establish its presence in UK towns and cities the likely cost of this programme – which might be £1 billion a year, or twenty per cent of the current cost of running HMRC - is not taken into account either. Nor is the likely significant gain from reducing taxpayer strain taken into consideration, or the gain from making the UK a more tax-friendly environment, to which considerable harm has been done since 2010.
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That of course is before we start on Limited Companies………
Indeed
Yes a number of good points. Are you saying that non-executive directors of HMRC include people from large companies and or are wealthy in their own right? That cannot be right.
Judge for yourself https://www.gov.uk/government/organisations/hm-revenue-customs/about/our-governance
This is not a “revenue issue” (in that we”need the money”) – it’s a fairness issue…. that eventually bevomes a serious revenue problem.
Law abiding traders are undercut by tax dodgers and eventually either go to the wall or become tax dodgers themselves.
Left unchecked the tax gap will spiral quickly out of control.
The equation is not cost of an inspector versus the extra revenue they raise…. it’s bigger than that. Urgent action is required.
Precisely
There is also a strong argument for doing away with the VAT threshold. If your 12 month rolling turnover hits £90,000 you have to register for VAT and charge customers 20% on most transactions. Apart from the inequality between VAT registered and non-registered suppliers, there is a huge temptation to keep your ‘official’ turnover below £90,000 by whatever means possible. Has a builder ever asked you for payment in cash?
If every business is required to be VAT registered it is harder to hide. In the EU only Switzerland has a higher VAT threshold than ours, the majority is below £40,000.
I tend to disagree
Maybe you have never been subject to our draconian VAT system and the awful penalties imposed in largely innocent readers within it who just made a mistake. It is a massively onerous obligation on small business to expect compliance with it.
Sorry Richard. I run a small business whose customers are all VAT registered businesses. I am therefore VAT registered. I find it simple to administer. I accept that some supply items can be confusing, but not the majority. If there are real issues then the system needs modifying to be less confusing.
VAT works until it doesn’t, and then as someone who lectured on it for many years, it becomes a nightmare.
@Clive Parry
Usually when people say it’s not the money it’s the principle, what they mean is that it IS the money.
But your comment is spot on. There’s so much more at stake here than ‘revenue’.
I agree with Clive and yourself – this is an issue affecting the basis of markets but unfortunately it will be tax that is seen as the ‘distortion’.
Avoiding tax is now a national pastime.
I would suggest that Your Taxing Wealth Report Chapter, ‘Reforming the organisation, goals, and funding of HM Revenue & Customs’ should be sent to every single Labour MP. Then I would ask your Blog readership (and perhaps Twitter and other media you use) to write to their Labour MP (where they have one) to ask them what they are doing to implement your report on HMRC reform. We need action now that will work; and Labour are incapable of delivering it.
To facilitate this I would publish the official Parliamentary email address of every Labour MP (and an outline draft of the question). The anger at the Labour Party for misleading everyone is so palpable; but the Labour machine (a flattering description of a ricketty operation) is obviously relying on allowing their impregnable Parliamentary majority and the time in hand to dull the impact of their hopeless inadequacy. And, on past record they will pay; but like most British Governments, not until too late for everybody else in the country.
The trouble is, John, that none of them woiuld read it.
“…The trouble is, John, that none of them woiuld (sic) read it.”
Indeed so. There are interns and paid staff to do that sort of thing. And they know what their employers want to hear and what to ignore.
Richard,
You need another Welsh holiday; birds or trains. If you believe not one of 460 (?) will even read it …… definitely you need a longer, quieter break!
I know how little they ever read, John.
The world goes on around them, and they rarely notice unless it bursts into their own little bubble.
OK, maybe I need the holiday …..
Go on…..
More than 100 UK millionaires have been identified as tax dodgers after hiding their wealth using offshore schemes.
Documents in the Paradise Papers leak show the identities of taxpayers who moved assets worth tens of millions of pounds into companies in Mauritius.
The tax avoidance schemes involve them claiming to no longer own property, cash and investments in order to keep their fortunes out of reach of HMRC.
It appears many of them use the companies like personal bank accounts.
This allows them to continue to enjoy the benefit of their hidden riches. Mark Faulkner and his partner Harriet Logan moved more than £28m in cash and assets to a Mauritian company called Babington PCC.
Officially they have given away their fortune, but the Paradise Papers documents show they could still control how cash was spent because they acted as “investment advisers” to Babington.
They have advised the offshore company to buy a £3.25m country mansion, properties in London, a brand new Aston Martin, an art collection, a collection of classic photographs and a cellar of vintage winesIt also owned their holiday home in Florida, funded the upkeep of another holiday home in the south of France, paid for trips to New York and Miami, and spent more than £100,000 a year funding Mr Faulkner’s hobby of classic yacht racing
It’s enough to make your blood boil
https://www.bbc.co.uk/news/uk-41893764
Thank you, Pat.
I know Mauritius well and even know where the letter box for the former PM’s investment firm is located.
Further to the recent post about asset stripping, Mauritius is marketing itself as a shelter for such “racaille”.
Then there are our national newspapers 80% – at least – is owned, controlled and operated by offshore billionaires who do not pay tax in the UK and who use it to propagate their far right neoliberalism and anti-democratic views.
This is where I would start the damage these people do to our country goes far beyond their tax dodging.
Pat: “national newspapers 80% – at least – is owned, controlled and operated by offshore billionaires who do not pay tax in the UK and who use it to propagate their far-right neoliberalism and anti-democratic views”.
Yes, and ownership of UK newspapers should be restricted to those who live in the UK and pay their full share of taxes.
But more than that, because of their lust for wealth and power, most UK newspaper editors are ignoring the global overheating catastrophe – as well as misinforming the public about climate science. Because of the range of his publications, Rupert Murdoch is responsible for an unimaginable number of deaths worldwide already. Billions more are now at risk because of him.
He has bequeathed his publishing empire to his children but is now trying to reverse his ‘irrevocable’ commitment. If the courts accept his change of mind his one son, who acts like he does, will retain control, and it seems, bring starvation, death and destruction to billions of human beings.
Surely governments can intervene.
@ Joe Burlington
It will be a brave politician that takes on the Murdoch empire.
Or one with nothing to lose.
Agreed. O e of Thatcher’s most destructive acts was to allow Murdoch to get his filthy hands on the Times. Denis Potter was spot on nicknaming the cancer he died of Rupert as recognition of this appalling man’s negative effects on Britain.
And actually, the world as a whole. We need governments who stop kow towing to him. Fat chance with the Tories who have always been at his beck and call. And Starmer doesn’t seem any different.
Chronic underfunding and poor management is also having an impact on HMRC staff morale.
You only need to look at the decline in department’s results in the People Survey over the years to see how bad it is getting each year. The entire department is basically running on fumes at this point.
Agree with everything in this article. But also, improve morale and you improve outcomes.
Agreed, entirely
I wonder if they’ll clamp down on people not declaring payments in kind.,…. clothes for instance.
Robert Jenrick, who is the favourite to be the next Conservative party leader, received £75,000 from a firm which has no employees, has never made a profit and has £332,000 in debts after taking a loan from an untraceable British Virgin Islands company
I think we can see why the Tories defunded HMRC
Source….
https://www.tortoisemedia.com/2024/09/20/robert-jenricks-top-donor-received-loan-from-untraceable-bvi-firm/
Go straight to the top of class Pat.
That is why politicians will not tax appropriately – because it is their funding source, after all.
Good take,
As a small business person, the complexity of the tax system has been my enemy. Paying tax is too complicated. Time and money are limited . Every hour tax returns take you away from your business or every £ you need to pay a professional advisor to deal with tax is an hour a a £ less invested in creating growth and jobs.
In the USA . Every government form has an estimate of the amount of time it should take to fill in. This should be mandatory for all official forms In the UK and the admin burdon controlled.
The closure of local tax offices and even helplines in August means that queries and questions take even more time away from the business. Oh and I’d like to point out that the time I find to complete tax forms is likely to be outside core business hours during my holidays so weekends and holiday times are the important times to be open.
That said. As part of the solution. Online systems could use AI to help complete tax forms. Asking my questions such as ‘ this. number is much larger than last year are you sure it’s right ? or has anything changes since last year ? Would be so helpful .
This of course needs understanding
and investment. Understanding needs small business input into HMRC but we are all too bloomin busy running their business and completing their HMRC paperwork to participate and the organisations that do participate are the same ones who make the money selling tax advisory and clever tax schemes to companies . So they want the system as complicated as possible and he HMRC help as sparse as possible to support their business model.
I have been a major critic on this point with HMRC and have given evidence to the House of Lords on it.
“….problems with the under-collection of tax in this country, which Labour appears no more interested in solving than its predecessors were. The reasons for this are very hard to fathom”
Not really. They know fine well (both parties) that tax revenue doesn’t fund government spending. Effective tax collection merely alienates their (very) wealthy sponsors and upsets the readers of right wing newspapers (people who do actually use their vote).
The ‘deficit’ is much spoken of, but little understood by the public and makes for a good stick with which to beat the populous.
Richard, I always like to read your material on HMRC. I have concerns too about them but wanted to point out they have been on the receiving end of massive changes in my time: 1. Merger with Customs & Excise a merger of dubious value imho & huge staff savings extracted as a result. 2. Huge IT programmes with various IT giants all over budget with many benefits not materialising. 3 HMT lead austerity cuts which impacted 000s of staff and 4. Cabinet Office obsession with Digital transformation to both reduce headcount and shift more work on to the citizen and the company. This level of change has material consequences as you have pointed out. I feel sorry for the bulk of the staff trying to do their job in such circumstances.
Much to agree with
Making Tax Digital is utterly ridiculous 8n design and execution