Tax avoidance targeted for the General Election

In the run up to the General Election on 7 May all parties are campaigning hard for votes and tax avoidance has taken a prominent position.

Politicians have been keen to demonstrate that they will be tough on tax avoidance and create a fairer tax system for all.  With both the main parties planning to claw back billions in tax from avoidance, it’s worth reviewing how this will be achieved.

Behind the hype, how different is the stance between Conservatives and Labour on tackling tax avoidance.

Labour tells us that they will raise an extra £7.5bn each year to ‘reduce the deficit and protect the family budgets of working people’.  Their manifesto also states ‘we will carry out an immediate review into the culture and practices of HMRC so that everyone follows the same rules and we increase the rigour of the tax system.  And we will abolish non-dom status so that those who make the UK their home pay tax in the same way as the rest of us’.

It’s in the manifesto but what does this mean in practice?  HMRC have come under intense scrutiny and criticism, not least from the Public Accounts Committee for not getting tough on tax avoidance and allowing certain categories of taxpayers to enjoy favourable terms.

A significant proportion of the non-UK domiciled individuals in the UK are wealth and job creators in the UK and non-domiciled tax status allows them to pay tax on all UK income and gains and any income and gains bought into the UK.

So, what is the Conservatives alternative and is it truly an alternative?

The Conservative manifesto does not specifically address tax avoidance but they have stated that they plan to raise £5bn each year from tax avoiders.

David Gauke, Financial Secretary to the Treasury for the Conservatives said that the coalition had raised more than £7bn a year in lost revenue.  The inference is that if they can raise £7bn per year now, raising £5bn is achievable.  However, there have been a number of revenue campaigns and opportunities (most of which have closed or are about to close) which make achieving these figures more difficult.  The advent of the Common Reporting Standard and the information that this will provide will play a large part in the government’s strategy for plugging that hole.

It is striking that Paul Johnson, the director of the independent Institute of Fiscal Studies has said that both parties are ‘making up numbers’ and that ‘it is impossible to know up front actually what you can achieve from cracking down on avoidance and evasion’.

The current targeting of tax avoidance will undoubtedly bring in money for the Treasury in the short term (18-24 months), what is not certain is how much tax will be recoverable thereafter.  What we can state with some certainty is that HMRC have managed to change people’s perception of tax avoidance and its impact on society.  It is also clear that HMRC have closed many of the loopholes used by promoters.

For further information please contact our TaxDesk on 0845 4900 509 and ask for John Hood.