Forget Class 4 NIC – the Chancellor should be tackling tax evasion

14 March 2017

Mike Down and George Bull

In his March Budget speech, the Chancellor tried to be ‘fair’ by announcing what have turned out to be controversial plans to increase Class 4 National Insurance Contributions (NICs) payable by the self-employed. Both high-earning professionals and the ‘white van man’ will be subjected to the additional charge – deemed ‘fair’ by Mr Hammond because the self-employed are said to get a better deal NIC-wise than those in employment.

The amount of extra revenue generated by this manifesto-pledge breaking measure is a net £145m a year, a mere drop in the ocean compared to the total Tax Gap of £36bn which includes £5.2bn lost to evasion and £6.2bn to the hidden economy. Shouldn’t HMRC be doing more to recover that stubbornly high £11.4bn? After all, tax evasion is completely illegal.

Using a targeted mix of new legislation coupled with a more robust and co-ordinated approach, HMRC has shown what it’s capable of by successfully cracking down on legal tax avoidance in a sustained attack which has lasted many years. We believe that the time has now come for HMRC to repeat that success by tackling tax evasion.

A number of ‘carrot and stick’ measures have been introduced over the past decade with a view to encouraging those with tax irregularities to come forward and put things right with the taxman. Most of these have so far been ‘carrot’-based’ - a series of disclosure facilities particularly aimed at those using offshore tax havens where HMRC considers that the more serious mischief has historically taken place. One of these, the now defunct Liechtenstein Disclosure Facility, offered immunity from criminal investigation to those who owned up, plus a true ‘amnesty’ in that any additional tax arising prior to 1999 was foregone.

We recognise that life is about to get more expensive for tax evaders who are caught by HMRC. Following the introduction of the Common Reporting Standard, under which more than 100 jurisdictions have signed up to the sharing of financial information, the imminent ‘Requirement To Correct’ legislation is an initiative which is more ‘stick’ than ‘carrot’. Those who ‘Fail To Correct’ by 30 September 2018 will be subjected to a range of stringent financial penalties and run the risk of being named and shamed. But will these new measures really have the desired effect of getting tax evaders to come forward and settle? Undoubtedly some will, but not to the tune of £11.4bn. 

To maximise tax revenues and bring erstwhile evaders into the tax system for the future, we urge the Chancellor and HMRC to embark on a concerted attack on tax evasion, starting with one final ‘amnesty’ for tax evaders who are thinking about coming clean to HMRC.

The Chancellor could fill his £27bn post-Brexit ‘war chest’, austerity would be reduced and the rest of us might see our tax bills come down if evaders paid what’s due.

For more information please get in touch with Mike Down, George Bull, or your usual RSM contact.