HMRC and IRS catching more tax evaders
January 23, 2008
Wolter Kluwer which owns CCH reports:
HMRC has raised £415.3million through investigations into business self-assessment forms over the past year, a 35% increase on last year when it netted £308million in additional tax, interest and penalties…[Neil Tipping, Senior Consultant] “And, whilst it may seem alarming to businesses who are about to submit their returns at the end of this month, the extra figures are in fact as a result of better targeting by the Revenue.
“In the past HMRC have been know to take a general broad brush approach to investigations, but over the past 12 months improvements to their risk profiling system has enabled them to target tax avoidance and evasion more effectively.”
Meanwhile in the US, Russ Fox reports that IRS audits have risen significantly. According to the IRS’s official results:
Overall, enforcement revenue reached $59.2 billion, up from $48.7 billion in 2006 and nearly $34.1 billion in 2002.
That’s about 98 times as much as HMRC for a population six times the size of the UK. Given that Russ has a very healthy blog on tax fraud, I’m not surprised.
Note that Neil Tipping talks about profiling. In my view this is a very good reason to use on-demand services that can aggregate results and provide the basis for benchmarking and analysis. If your firm specialises in any kind of trade and has reasonable numbers of clients in that niche then it is possible to develop statistical analyses that can be used to help clients better understand the risks they face. Those same stats can also be used to help argue cases where HMRC claims ‘local averages.’ They will always have access to a deeper pool of figures than the professional but local knowledge of the kind only professionals can acquire makes a huge difference.
As an aside, I was surprised with Richard Murphy’s assertion that:
The fact that the tax recovered from small business is such a small part of total recoveries is also worrying…The self employed have a much lower compliance rate. The failure to increase recovery from the small business sector as much as is happening in general is of concern in itself.
I’d like to see the stats on this and Richard does say he will write more later.
The last time this was aired on my site (a long time ago) I asserted that average collections from small business were of the order of £2,000. At the time, Simon Sweetman refuted that saying it was more around £500. HMRC has said on many occasions it is endeavouring to get best use of resources. £500 can hardly be worth the collection costs.
Technorati Tags: tax avoidance, tax evasion, tax research
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One Response to “HMRC and IRS catching more tax evaders”
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Hardly worth the collection costs indeed BUT don’t underestimate the deterrent effect of lots of smaller (and some bigger) settlements arising from enquiries into the self employed’s tax returns.
I believe that the tax take would go up if there were more people telling their mates about how they’d been caught out by the Revenue. That would require more investigations (risk based and random) so as to catch out more people who have tried it on. I’m afraid that human nature being what it is there are probably plenty of people sailing close to the wind and also a goodly number who consciously underdeclare their self employed income.
As things stand I’d bet that lots of people ‘down the pub’, ‘at the golf club’ and elsewhere swap stories about what they’ve ‘got away with’ than about how they’ve been caught out.
Until and unless that situation changes the headline figures of tax collected through investigations will have no impact on the chancers who do not pay the ‘right’ amount of tax.
As far as they’re concerned, none of their mates have been caught so those big numbers must relate to the big boys. After all, the Revenue are no longer interested in ’small fry’. At least that’s my view of the general perception.
So my take on this is that, whilst the smallest of settlements probably weren’t worth the effort, there need to be far more enquiries (which should be settled on a fair and equitable basis) to ensure that we have a more compliant population and less under reporting and evasion.
In summary: Over the last ten years there has been a systemic failure by the Revenue to ensure that cheating tax payers are discouraged and honest taxpayers encouraged to fully declare their income.
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