HMRC claws back record tax avoidance but risks long term strife
THE amount of extra tax gained through HMRC’s investigations into tax avoidance and evasion has hit a record £16.5bn but the approach could lead to long term damage to the economy as companies look to escape the aggressive strategy.
Accountant UHY Hacker Young, which has an office in Birmingham, said the amount collected through tax enquiries and other compliance work was up 37% in just 12 months, compared to £12bn in the previous year.
The firm said this had been achieved by a more aggressive approach by HMRC to clamp down on tax avoidance in line with budget deficit requirements.
Malcolm Winston, partner at the firm, said: “This is the biggest annual increase in the amount of money taken through compliance work since HMRC was established five years ago.
“Although this money helps to fill the hole in the Government’s deficit, there is a big downside. The extra investigations, the more aggressive stance HMRC takes, the changes in law needed to give HMRC new powers – everything needed to collect this extra money – all risks making the UK a less attractive jurisdiction for businesses.”
He said many UK companies had opted to move their domicile overseas to places like Ireland, Switzerland and Malta and not just because of the UK’s high business taxes but also because of the increasingly aggressive attitude of HMRC to tax collection.
The firm said the loss of tax revenue as a result of the tough approach could end up being far more costly than the short term boost from the increased compliance take.
“The Government and HMRC now seem to believe that they found the secret of alchemy. All they need to do is invest more money in tax investigations and compliance work and the extra tax income will keep flooding in,” added Mr Winston.
“The reality is that much of the money that HMRC collects from compliance work is from businesses that feel intimidated into settling with HMRC or it is from litigation where HMRC is able to outspend a less well-resourced small or medium sized company.”
UHY Hacker Young found the largest contributor to the total collected from compliance work in the last year was corporation tax enquiries, which made up £4.6bn or 23% of the total compliance income collected by HMRC.
Extra tax brought in through VAT interventions has risen to £6.2bn in the last year, up 92% from £3.2bn the year before.
VAT interventions carried out on large businesses brought in £2.4bn in the last year, a substantial increase from £837m the year before.
