The 2015/16 Public Accounts Committee report, published on 23 March, was scathing in its criticism of HMRC’s efforts to deal with and reduce tax evasion. This criticism was levelled at a number of areas, chiefly the ‘limited progress’ made by HMRC towards reducing the level of tax fraud losses, which has remained at a constant 3% of all tax liabilities for the last 5 years. Tax fraud results in losses of around £16 billion a year which is nearly half of the tax gap of £34 billion.
The report reached conclusions on five main areas and provided recommendations in relation to these.
HMRC has not set a clear strategy for tackling tax fraud
It was noted by the Committee that HMRC were unable to specify how much resource is allocated to tackling tax fraud in comparison to other types of compliance work, such as tax avoidance. It was estimated by the National Audit Office that 30% to 40% of HMRC’s compliance yield comes from tax fraud, an apparently low figure on the basis that this accounts for half of the tax gap.
The report recommended that HMRC set out a clear strategy by November 2016, which should indicate the level of resource dedicated to tackling taxfraud and the potential yield.
Public perception that HMRC is not doing enough to tackle tax fraud by the wealthy
In the previous report published in November 2015, the PAC noted the ‘woefully inadequate’ number of criminal prosecutions in relation to offshore tax evasion. This was largely in relation to the failure on the part of HMRC to prosecute people mentioned on the Falciani list of stolen HMRC data, sending the message to the public that those with substantial undeclared offshore wealth could more or less get away with it.
HMRC informed the Committee that around 35 wealthy individuals were investigated for tax evasion each year but were unable to provide specific information regarding successful prosecutions of the same.
The report urges HMRC to increase the number of investigations and prosecutions, particularly in relation to wealthy tax evaders and publicise these efforts to as large degree as possible.
HMRC is apparently unaware of the required levels of prosecutions to act as an effective deterrent
HMRC met the target set in 2011 of an increase in prosecutions for tax evasion of 1,000 cases, from 165 in 2010-11 to 1,165 in 2014-15. However, this target was only met as a result of HMRC’s strategy of targeting less complex cases. The report found that HMRC appear unaware as to the effect of this increase in prosecutions in relation to acting as an effective deterrent, or what the optimum number might be to achieve this. It was recommended that HMRC assess this number and the appropriate mix of tax evaders.
Other recommendations were made by the report in relation to the unclear way in which HMRC reports on reducing the tax gap and concerns over the growing risk of VAT fraud by internet traders.
The main message delivered by the report is that HMRC must demonstrate a clear strategy on tackling tax fraud, at all levels. This strategy should incorporate a substantial increase in the number of investigations and prosecutions, and making these public in an attempt to provide an effective deterrent. The message for those with undeclared income gains, whether in the UK or overseas, is very strong indeed: in the past what may have seemed an idle threat, criminal prosecution is now a very real possibility.
Gabelle has a wealth of experience in dealing with disclosures to HMRC, at all levels. With the closure of the Liechtenstein Disclosure Facility, and the delay in any sort of announcement regarding the proposed ‘last chance’ disclosure facility, there is currently no formal route through which to disclose to HMRC and therefore requires careful handling than ever. Should you wish to discuss a disclosure please call TaxDesk on 0845 4900509 and ask for Isobel Clift.