We have noted before in Weekly Tax Brief that of the total tax gap figure of £36bn, some £11.4bn relates to illegal tax evasion and the hidden economy. Much of HMRC’s focus in recent years has been aimed at tackling tax avoidance and to a large extent, that battle is now well on the way to being won.
But what about tax evasion? Can HMRC now manage to robustly re-direct its efforts towards challenging those who deliberately understate - or indeed fail to declare in the first place - their income and gains, whether arising offshore or within the UK? Much good work has already been done by the department by using an innovative series of disclosure facilities and campaigns which have encouraged those with tax issues to come forward and settle up, often with mitigated penalty terms and – in the case of the Liechtenstein Disclosure Facility – a promise of no criminal investigation of any misdemeanours.
However, the days of favourable settlement terms appear to have gone forever as HMRC is now saying to those yet to disclose, ‘you have had your chance and didn’t take it’. With offshore tax irregularities, new ‘Requirement to Correct’ (RTC) legislation comes into play under which those who decline to put things straight before 30 September 2018 will then be subject to the Failure to Correct regime. This introduces significant monetary penalties of at least 100 per cent of the tax lost plus the likelihood of naming and shaming. Furthermore, the criminal option remains open to HMRC.
It is possible that this change of approach could cause HMRC difficulties going forward. Those who always intended to come forward voluntarily will surely by now have already disclosed, whereas many of those who have never considered coming clean will arguably seek to continue to gamble on their chances of never being found out. So what are the odds for those persistent evaders being tracked down? HMRC would say ‘very high’ because of the trend towards international tax transparency, particularly the 'Common Reporting Standard' which will mean that a full year’s worth of financial information will have been shared by more than 100 jurisdictions by the time that the RTC period has ended. This coupled with the use of the department’s all-embracing ‘Connect’ data risk analysis tool makes it more or less certain that those trying to stay beneath the HMRC radar will eventually be caught.
The key word here though is 'eventually'. If tax evaders effectively say to HMRC ‘come and find us’, the department will need to target its valuable and limited staff resource at identifying those who – based on information available - are perceived to present the highest immediate risk. Some cases HMRC pick up for investigation will be correct. Others will inevitably be wide of the mark, meaning that opportunities are missed and time is wasted. What’s more, many years may pass before all those cheating the system are found out.
Given this, and with one eye on a quick win in terms of immediate generation of back taxes, surely it is not too late for HMRC to think again and introduce one last – and final - disclosure facility containing at least a small measure of beneficial terms?
For more information please get in touch with Mike Down, or your usual RSM contact.