Analysis by the Office for Budget Responsibility (OBR) indicates that HMRC will not be able to recover as much tax from crown dependencies - Jersey, Guernsey and the Isle of Man – as it previously did, with the forecast of the amount raised cut from the original £1bn to around £270m
The OBR’s economic and fiscal outlook report took a look at a Budget 2013 measure which announced a disclosure facility with the crown dependencies and was originally costed to raise £1.05bn from 2013-14 to 2017-18.
This comprised the voluntary disclosure of unpaid past tax liability (which would run from 2013-14 to 2016-17), and an information exchange agreement whereby from 2016 onwards HMRC would receive annual information on UK resident account holders in Jersey, Guernsey and the Isle of Man that would generate future compliance yield.
The OBR notes it lowered its forecast of the total yield to £800m in November, but also changed the profile having considered evidence from HMRC on the extent to which any initial yield lost through lower disclosures would be recouped through additional compliance activity in later years.
The disclosure facility closed on 31 December 2015 and HMRC has now informed the OBR that there were far fewer disclosures than expected.
This is due to a number of factors, including HMRC campaigns being less effective and with less coverage than expected and a perceived lack of awareness from those targeted.
However, the OBR also suggests that HMRC lacks the necessary manpower to follow up on the measures.
‘HMRC is also now less optimistic about how much of the lost yield can be recouped through additional compliance activity, on the basis that they are unlikely to be able to work the higher number of additional cases on top of existing workloads,’ the OBR report stated.
An HMRC spokesperson said the department was ‘getting tougher on offshore evasion . . . any suggestion to the contrary is simply ridiculous’.
Taking both factors into account, the OBR has lowered the costing for this measure by a further £530m, on top of the £800m reduction announced late last year, which means the disclosure programme is likely to bring in only about £270m.
In addition, the OBR says it has reduced the yield expected from the Liechtenstein and crown dependencies disclosure facilities in light of lower than expected registrations when they closed at the end of 2015.
The report states: ‘Much of the yield was expected to come through via self assessment in 2016-17 and this has reduced self assessment receipts by £0.6bn in that year.’