With the end of the Government’s Covid-19 support measures, HMRC staff are being deployed back to their usual teams although, as previously reported, a team has been created to root out Covid fraud.
HMRC data shows that the tax gap (the amount of tax lost in Britain through non-payment, avoidance and fraud) has increased to £35bn (this is without losses due to Covid crime). The group TaxWatch (independent of HMRC) has put the tax lost to fraud at a minimum of £15bn.
The Treasury is applying pressure to HMRC to close the tax gap and collect the outstanding debts which have arisen over the Covid-19 pandemic. MPs on the Public Accounts Committee (PAC) are ‘not confident’ in HMRC’s ability to recover the current ‘mountain’ of tax debt.
We are therefore seeing a total change in HMRC’s behaviour from the soft approach over the period of the Covid pandemic, for example agreeing payment plans now is more difficult, tax determinations are being issued much more quickly than previously.
- HMRC has created a small task force to look at taxi drivers, minicab drivers and scrap metal merchants from April with new tax evasion checks.
HMRC has introduced several new tax checks in a bid to scrutinise workers in sectors deemed to be high risk for evasion, with a focus on roles where cash-in-hand work is prevalent, or cash is widely used. As of 4 April 2022, taxi drivers, minicab drivers and scrap metal merchants will have to confirm to HMRC that they pay their taxes in full to renew their licences from local licensing authorities. Those found to have underpaid or misled HMRC may lose their licences to operate and could also face criminal prosecution. HMRC projects that the new system will prevent £270m of tax evasion over the next five years.
- It is reported that HMRC is opening over 1,000 new tax investigations every day. HMRC launched 137,000 tax investigations in the six months to December 2021, according to tax investigation insurance firm PFP. This figure is up 9% from the same period in 2020, noting that the last six months of 2021 could still be viewed as heavily affected by the Covid pandemic with HMRC resources still deployed in Covid-19 support teams and a clear sign that HMRC see increased compliance activity as one way to close the tax gap.
- We have flagged recently HMRC’s interest in crypto assets, with the issue of nudge letters. Recently, as part of a £1.4m tax fraud case, HMRC seized three non-fungible tokens (NFTs) as part of the investigation.
- Last week the first tax promoters list was issued following legislation passed last year. The list names promoters, enablers, and suppliers of tax avoidance schemes. Taxpayers involved in any of the tax avoidance schemes shown on the list, or recognise any of the promoters, enablers or suppliers, who are not already in contact with HMRC should make contact with them. Two promoters have been named, details can be found HERE.
- HMRC have won at a number of court and tax tribunal cases recently, including some high-profile cases:
- The court finding that accelerated payment notices (tax payments by taxpayers involved in avoidance schemes to be made in advance of the avoidance scheme being tested at court) are valid. The court ruling in favour of HMRC upholding payment notices totalling over £200,000 in a lead case that will affect hundreds of taxpayers.
- Matalan founder’s £84m tax appeal reject regarding being non-UK resident so as avoid capital gains tax on the disposal of shares.
- A share bonus scheme, known as a Growth Securities Ownership Plan (GSOP), which mitigated income tax for employees has been found not to work by the courts. The court finding that the awards under the plan were earnings from employment and therefore taxable.
In addition, we are seeing the number of Covid crime prosecutions increase. Outside of the Government’s Covid-19 support packages provided by HMRC, we are starting to see prosecutions for fraudulent Covid loan applications and/or use of funds. A company director recently being disqualified as a director for ten years for making a fraudulent application and utilising the funds. In June 2020, the director applied for and secured £40,000 through the Bounce Back Loan scheme, when the Company turnover was only £12,240, but stated the turnover as £162,240. The director then proceeded to spend nearly the full loan amount for his own personal benefit, and not for legitimate business requirements, breaching the terms of the Bounce Back Loan scheme.
The Insolvency Service have been given more powers to tackle rogue directors who dissolve their companies and avoid paying liabilities.
The increase in HMRC compliance activity makes a good case for considering taking up tax investigation fee insurance, which covers against the professional costs of dealing with an HMRC enquiry. We can arrange cover with Professional Fee Protection Limited. Details of the tax investigation fee service provided by Harbour Key can be found HERE.