On 7 March 2012 the Treasury Select Committee (TSC) published its report and recommendations on how HMRC tackles non-compliance.
The TSC’s main recommendations were:
- The tax system should be simplified so it is easier for people to comply
- HMRC should make it easier for people to make a voluntary disclosure
- People should be better educated by HMRC so that they do not fall into the trap of not registering
- The method of calculating the tax gap should be changed
- People who are given every opportunity to come forward and still don’t comply should be prosecuted
HMRC were praised by the committee for generating an additional £7 billion in tax revenue from their ‘spend to save’ initiative, which ring-fenced £917 million for tackling non-compliance. HMRC’s four year target is to collect an additional £18 billion by the end of the 2013/14 year, which must mean that the risk of being investigated is going to increase substantially.
The £917 million is allocated as follows:
- 65% invested in tackling mass market tax evasion
- 10% targeting organised crime
- 5% focused on large business and wealthy individuals
The balance of 20% is to be invested in a series of interventions focused on collecting undeclared tax such as the recently announced campaigns targeting electricians and e-market traders.
To ensure that people are given sufficient opportunity to put their affairs in order, the TSC suggested that a general disclosure facility should be considered, pointing to the success that previous campaigns have enjoyed when targeted at specific sectors.
In terms of criminal investigations, the committee commented that the drop in successful criminal prosecutions by 41% against 2007 levels was quite alarming and the committee suggested that prosecution is the best deterrent to temper deliberate evasion. Furthermore, the committee recommended that those who do not participate in the disclosure schemes currently available (LDF / Swiss deal) should be prosecuted and that those prosecutions should be well publicised.
The TSC commented that HMRC have focused for far too long on those people who are in the tax system, rather than those who are outside of the system and that HMRC should shift focus to the hidden economy.
We anticipate a marked increase in HMRC’s efforts to target people that are not on HMRC’s radar and therefore not paying tax. With a targeted fivefold increase in criminal investigations, there is a real risk that people who continue to ignore the opportunity to put their affairs in order may face a criminal investigation unless they seek appopriate advice now.