HM Revenue & Customs estimates the total UK tax gap, the difference between the tax collected and the amount that should be collected “in theory”, at £34bn. Just £1.7bn relates to avoidance (excluding international tax planning strategies such as profit shifting, which are being addressed slowly but multilaterally), and £6bn relates to interpretation of the law.
In contrast, criminal attacks account for around £5bn and evasion another £5bn, while £3.5bn is attributed to the “hidden economy”.
Read more: My article for AAT Comment, 12 January
More could be done to tackle tax avoidance and evasion, but it is important not to tar all offshore activity with the same brush in the wake of the Paradise Papers, UK tax professionals suggested. One expert said simplification could reduce opportunities for those who seek to abuse the system.
As UK lawmakers and campaigners stepped up demands for greater transparency, Jonathan Riley, head of tax at Grant Thornton UK LLP, told Tax Analysts that the controversy “may represent the last chance for the tax profession to show it takes evidence of artificial tax avoidance seriously and will not promote it.” Riley noted that advisers are subject to many disclosure and compliance rules but tax is “still largely self-regulated.” It will be interesting to see whether the tax and accountancy bodies’ code on Professional Conduct in Relation to Taxation, updated with effect from March, is invoked in any cases featured in the Paradise Papers, he said. Read more:
My news story for Tax Analysts, November 17 ($)
The Paradise Papers revelations show that tax avoidance has become “a scourge on our society” and illustrate the need for public country-by-country reporting, Dame Margaret Hodge told members of the UK Parliament as she led an emergency debate November 14 while the government continued to defend its record of tackling avoidance and evasion.
Hodge, chair of an all-party parliamentary group on responsible tax, said the debate was urgent because Chancellor of the Exchequer Philip Hammond was putting the finishing touches on the budget statement, scheduled for November 22. “The actions and the culture of powerful, large corporations and of the wealthiest in our society, as revealed in the Paradise Papers, constitute a national and international disgrace,” Hodge said …
The Paradise Papers have exposed a crisis of confidence, Conservative MP Nigel Mills said. “We need our tax system to be fair and our financial system to be legally compliant and as clean as we can make it.” Read more:
My news story for Tax Analysts, November 15 ($)
House of Commons debate of November 14 on tax avoidance and evasion: transcript
A shift in the public debate is needed to ensure that everybody sees tax evasion as unacceptable, a leading UK tax expert said after official figures suggested that avoidance accounted for £1.7bn of a £34bn tax gap.
HM Revenue & Customs estimated that evasion, criminal attacks, and the hidden economy together accounted for £13.8bn, and error and non-payment for £6.4bn. Losses arising from differences in interpretation of the law accounted for £6bn, and failure to take reasonable care accounted for £6.1bn …
My news story for Tax Analysts, October 30 ($)
HMRC: Measuring tax gaps
A perception that the odds are stacked against HM Revenue & Customs and in favour of business impedes the effectiveness of the tax authority’s anti-evasion efforts, according to research that identifies four “distinct profiles of evader” among small and midsize businesses in the UK.
For any intervention strategy to work there is a basic requirement for those evading to “believe that there is a real risk that the evasion will be detected and proven,” said Quadrangle Research Group, a London-based consultancy that conducted the research in April 2016. “The main barrier to effectiveness” is that this is not currently the case, Quadrangle said in a report published on HMRC’s website on September 29.
A new offence listed in the Criminal Finances Act, failure to prevent the facilitation of tax evasion, came into force on September 30. HMRC published guidance on September 29, inviting companies and partnerships to “report on their own behaviour”. Read more:
My news story for Tax Analysts, September 30 (paywall)
HMRC research report: September 2017: Understanding evasion by Small and Mid-Sized Businesses
HMRC guidance September 29: ‘Tell HMRC about a company helping people to evade tax’
HMRC press release September 30: ‘Stop facilitating tax evasion or face criminal prosecution, HMRC tells corporations’
Solicitors and law firms could face greater scrutiny over aggressive tax avoidance schemes, according to a warning notice issued by the Solicitors Regulation Authority, but tax experts called for clarification of some aspects of the guidance.
“Like the rule of law, tax underpins the effective running of our society and economy,” said SRA chief executive Paul Philip in a September 21 release. “Solicitors play an important role in helping taxpayers meet their legal obligations. The government has been clear that the common assertion that tax avoidance is legal no longer applies.” The SRA regulates 130,000 solicitors and law firms in England and Wales …
“The strongly-worded warning contains some comments that are surprising,” the [ICAEW Tax Faculty] said. “For example it says that when advising a client on a tax avoidance scheme that fails ‘you will leave yourself open to the risk of disciplinary proceedings as well as committing a criminal offence [our emphasis].’ This appears rather sweeping and may need further clarification,” the faculty added.
Judith Freedman, professor of tax law at the University of Oxford, told Tax Analysts that the SRA notice and accompanying press release “do seem to be poorly worded in places.” Read more:
My news story for Tax Analysts, September 22 (paywall)
HM Revenue & Customs officers made it “absolutely clear” in a TV documentary that there is no hiding place for people intent on tax evasion, RSM UK partner Mike Down observed.
Catching the Tax Dodgers is “intentionally scary,” Down said, after the programme makers sought to portray what they called “the war between the tax dodgers and the taxman.” The documentary, filmed over a period of four years, was broadcast by Channel 4 on August 13.
HMRC thinks it has “discovered a £36 billion black hole,” the documentary’s narrator said in reference to the department’s estimate of the tax gap for 2014/15. That sum represented 6.5 percent of theoretical tax liabilities, HMRC said in its October 2016 report. The report notes that the tax gap showed an “overall downward trend” from 8.3 percent in 2005/06 before levelling out in recent years. Read more:
My news story for Tax Analysts, August 21 (paywall)
A local authority urged Philip Hammond to do more to tackle tax evasion as it suggested that “rogue” landlords could be costing the Treasury as well as exploiting vulnerable tenants.
Sir Robin Wales, mayor of the east London borough of Newham, said the council’s “private rented licensing scheme” introduced in 2013 had “unearthed that many unscrupulous landlords may be benefiting from undeclared tax.” The Newham council works in close partnership with HMRC to help ensure that landlords meet their financial obligations, Wales wrote.
“We understand that nearly 13,000 Newham landlords have questions to answer and we estimate that across London unpaid tax by landlords could be costing the public as much as £183 million,” Wales said in the council’s emailed statement. HMRC did not recognise the estimate of 13,000, which represents almost half of the borough’s registered landlords, but a spokesman told Tax Analysts that it was working with the borough as part of its UK-wide Let Property Campaign. Read more:
My news story for Tax Analysts, August 21 (paywall)
Tax campaigners criticised a lack of progress on setting a timeline for the UK’s overseas territories to make registers of beneficial ownership public, after a London summit failed to produce new commitments on transparency. But Theresa May is determined to pursue her predecessor David Cameron’s efforts to secure public registers, a government minister told members of Parliament.
BVI premier Orlando Smith said the annual ministerial meeting between the UK and the overseas territories, held at the Foreign & Commonwealth Office on November 1 and 2, was “very cordial,” the Financial Times reported.
Christian Aid joined ActionAid and Global Witness in expressing disappointment that “the UK’s tax havens remain stubbornly resistant to following the lead on transparency set by the UK itself.”
Read more: My news story for Tax Analysts, 11 November (paywall).
A special unit collecting additional tax from high net worth individuals raised £416 million during the 2015-16 tax year, but HM Revenue & Customs has not yet identified which of the unit’s approaches to compliance work are the most effective, according to a National Audit Office report.
HMRC defended its methods after some media reports focused on the NAO’s finding that, while HMRC is currently conducting formal inquiries on about one-third of HNW taxpayers, only one such taxpayer has been successfully prosecuted since the unit was formed in 2009.
Read more: My news story for Tax Analysts, 2 November (paywall).
A continuing lack of transparency in the UK’s overseas territories and crown dependencies will significantly hinder efforts to curb global corruption, and more must be done to ensure that developing countries’ voices are heard on international tax reform, according to a cross-party committee of members of Parliament.
The International Development Committee welcomed the work done by the OECD through its flagship base erosion and profit-shifting project. “However, international tax discussions must be fully reflective of international concerns, including those of developing countries, and we remain concerned that the OECD – due to its composition – is not adequately reflecting the needs of the poorest countries in its policy outcomes,” the committee said in a report titled “Tackling Corruption Overseas,” published October 19.
Read more: My news story for Tax Analysts October 20 (paywall).
The Labour Party will rewrite the rules of the U.K. economy to the benefit of working people and end the “scourge” of tax avoidance, Shadow Chancellor of the Exchequer John McDonnell told the party’s annual conference in Liverpool September 26.
“We can’t run the best public services in the world on a flagging economy with a tax system that does not tax fairly or effectively,” McDonnell told delegates two days after the party re-elected Jeremy Corbyn as leader following a fierce and divisive election campaign. Corbyn won almost 62 percent of the vote, beating center-left challenger Owen Smith.
Read more: My news story for Tax Analysts, 27 September (paywall).