Government budgets are going to be tight for the next couple of years as they try to balance the books and pay for all of the measures deployed to tackle covid-19.
We’ve seen non-doms squeezed in recent years, the pensions triple-lock looks under threat and inheritance tax changes have already been touted.
But what about tax evaders and avoiders?
The eyes of the UK government have long been on an almost mythical pot of money it believes is hidden offshore.
But there are plenty of individuals and businesses in the UK that fail to pay what is due.
Act with intent
Mark Taylor, head of tax investigations and dispute resolution at Buzzacott, told International Adviser: “Within the UK, we’ve had the publication of deliberate defaulters for several years now.
“In essence, the scheme entitles HMRC to publish on its website, the details of any taxpayers who, in its view, have acted deliberately to facilitate a tax advantage for themselves.”
The operative word is ‘deliberate’, which means the taxpayer “must have knowledge of the offence and, crucially, there must also be the legal mens rea of intent”, Taylor explained.
This can involve:
- Filing a return, knowing that it contained inaccuracies;
- Discovering that a historic return was incorrect, and failing to correct the position; or
- Opting not to take a particular course of action; knowing that, as a consequence, the correct amount of tax would not be presented to HM Revenue & Customs.
Yes but, no but
But there are ways in which to avoid having your details published if you fail one of the above tests.
Taylor explained that this would be if HMRC assesses that:
- All deliberate conduct ceased prior to 1 April 2010;
- The potential lost revenue is below £25,000 ($32,777, €27,664), or
- During the course of the investigation you cooperated completely with HMRC, such that you receive the maximum possible penalty reduction.
“If you are unable to demonstrate to HMRC that any of the above applies to your case, the case will be sent to the specialist HMRC unit responsible for publishing.
“At this point, you are able to present written representations to that team, imploring them not to publish your details,” he added.
Taylor said that HMRC believed its ‘name and shame’ approach would be such a strong deterrent that “people would almost be walking the street in shame with people ringing bells like they were lepers”.
Hence the various ways and means in which people can avoid being published.
“HMRC provided these ‘outs’ because they thought the individuals affected were going to be pariahs.
“However, it hasn’t actually proven to be the case because tax investigations experts like myself, even in cases involving the most serious of conduct, are still able to get people off that ‘name and shame list’.
“This is because we know how to cooperate with HMRC. Even when it’s in excess of £25,000, we can still ensure our clients avoid publication through diligent engagement with the investigation process.
“If you look at the names on the list, the vast majority will have had their details published, primarily because they did not receive effective representation during the course of their enquiries.
“It is, therefore, quite possible that those on the list, are not in fact, really the most serious of defaulters.”
Gerry Brown, a tax expert with QB Partners, agrees that publishing defaulters’ details is not much of a deterrent.
“My understanding is that the UK followed the lead of the Republic of Ireland on this.
“The Irish system goes further than the UK, in that those who are ‘guilty’ of minor tax offences, such as failing to submit a self-assessment or quarterly VAT return, are listed.”
When it comes to effectiveness, he questions how many people, aside from tax specialists, are actually reading HMRC’s website on a daily basis.
“There are still many evaders listed each quarter, evasion is not demonstrably declining,” he told IA.
“Evasion is relatively easy to establish. All those listed have paid ‘back’ tax, interest and penalties to HMRC.
“Avoidance is less clear cut and it might well require a tribunal hearing before transactions are regarded as constituting tax avoidance,” Brown added.
But that’s not to say the government isn’t doing anything about tax avoidance.
Brown pointed to five ways in which the UK tax authorities are attempting to tackle the problem, each with varying degrees of success.
General Anti-Abuse Rule (GAAR) Advisory Panel Opinions
“These look at specific schemes, but the taxpayers are anonymised,” he said.
“Few folk, other than tax specialists, would read these. They are written in a very legalistic style and are not an easy read. There haven’t been many opinions published – a handful each year.
“An informed adviser would avoid the scheme being reviewed if it received an adverse opinion.”
“HMRC publishes Spotlights – short ‘warnings’ on popular tax avoidance schemes that HMRC thinks ‘don’t work’,” Brown said.
“The scheme is described generically – without a lot of detail. There is no identification of users. In my opinion the schemes covered in Spotlights are more widely promoted that those covered by the GAAR panel opinion.
“There are 55 schemes currently covered. How many folk read Spotlights? Not many I would suggest and certainly not potential users.”
Brown continued: “HMRC usually issues a press release when it has been successful in a court case against an avoidance scheme, eg film schemes.
“These get some press coverage – particularly where there have been celebrity users – but it takes so long, often 10+ years, to get disputed cases to court that there is no real impact on potential users.
“The schemes might have been ‘closed’ by specific legislation.”
“HMRC publishes other material of a more general nature on tax avoidance,” Brown said.
“My ‘objection’ remains the same – who regularly reads the HMRC website?”
He also flagged issues with the usability of the site, which makes it difficult to find relevant information.
Non- HMRC material
“Tax Justice Network names and shames tax avoiders but it is usually the Amazons/Googles/Facebooks of this world who are seemingly unconcerned with the publicity,” Brown added.
“Parliament’s Public Accounts Committee (PAC) occasionally looks at tax avoidance and names avoiders – again it is the multi-national companies who get named.”
Brown and Taylor are in agreement when it comes to the lack of any real deterrent from ‘naming and shaming’.
Taylor added: “If HMRC were to look at the deliberate defaulters’ scheme and ask itself, ‘is it actually serving as the effective deterrent it was intended to be?’, in my view, the answer would be probably not.”