While there is much to be applauded about the government’s campaign to tackle the tax gap, estimated at a monumental £45bn, there are signs that political pressure is the main driver rather than practical measures to collect unpaid tax
Some of the methods seem harsh; all right and proper to collect the tax, but when HMRC itself admitted writing off £15.5bn in tax debts in the last four years, it seems odd that that it is pursuing the much hated direct recovery of debts (DRD) scheme with such ardour.
Estimated to raise £100m in lost revenue, while DRD is one way to catch a recalcitrant minority of tax evaders who refuse to engage with the tax authorities, most people who fall foul of the aggressive measure will probably be unsuspecting tax credit defaulters and small business owners who have fallen behind with their bills.
Yes, the deficit needs to be contained, but this paltry target will not make much of a dent in the overall total. Remember this policy was dropped six years ago when HMRC last asked for the power extension; this time, it may just get the necessary parliamentary approval as the mood of the country has changed so much.
With 1,200 schemes in its sights, this should keep HMRC inspectors busy but with ambitious targets to raise nearly £7bn – don’t hold your breath
There’s always a chance HMRC will achieve its targets with the accelerated payment scheme which will force participants in questionable tax avoidance schemes to pay up before cases go to court.
With 1,200 schemes in its sights, this should keep HMRC inspectors busy but with ambitious targets to raise nearly £7bn – don’t hold your breath.
Acceptable tax planning
Without doubt, what was once considered acceptable tax planning is now increasingly less defensible. For some time, tax havens or so-called favourable tax regimes have been feeling the heat with multinationals and financial institutions reviewing their corporate structures.
Surprisingly, HSBC recently announced plans to pull out of the Cayman Islands; the result perhaps of too many pesky international tax exchange agreements rather than a sudden reduction in local business.
Barclays’ first country-by-country tax report stated that it too was reviewing its Luxembourg base having closed the bank’s structured capital markets unit there last year.
A beneficial tax bill for Barclays was attributed to the fact that Luxembourg tax was not paid on the majority of profits due to local laws.
Meantime, Fiat, Google and Amazon have submitted papers to the EU outlining their tax policy in Luxembourg, criticised as being based on sweetheart tax deals. The multinationals are not overwhelmed; after all, the tax regime they are using was created by the Luxembourg government to attract inward investment.
In fact, the incoming president of the EU, Jean-Claude Juncker, was one of the architects of the current tax landscape as prime minister and one-time finance minister of the member state.
So as usual it’s down to the lawmakers – they need to make up their minds about the conundrum of tax revenues and inward investment.
Sara White is editor of Accountancy