The CIOT has argued in written evidence to the Treasury Sub-Committee’s Tax Avoidance and Tax Evasion Inquiry that HMRC should direct more resources to tackling illegal tax evasion activity given its persistence in Tax Gap figures, rather than simply pile on legislative changes.
While tax avoidance has reduced considerably over the last few years, tax evasion due to illegal activity remains broadly constant. Cracking down hard on tax evasion, whether onshore or offshore, should not mean a harsher penalty regime for those who are careless, still less those who are merely confused: different taxpayer behaviours should prompt different HMRC responses, says the CIOT.
By contrast it does not matter whether ‘non-compliance ‘ has some cross border element that makes it ‘offshore’: offshore or onshore, it is the fact of non-compliance and the type of taxpayer behaviour that prompts it which are important.1
Commenting, John Cullinane, Tax Policy Director, said:
“The UK has a relatively low ‘tax gap’ by international standards, but it is important that HMRC continue to focus on this area, to secure the tax base and promote better public confidence in the tax system. Such efforts must be geared to whether the taxpayer’s behaviour is deliberate, careless, or merely confused.”
In its submission to the committee, the CIOT said:
“When implementing new policies to address non-compliance, it is important to differentiate between the different behaviours that caused the non-compliance; in particular, non-compliance could have nothing to do with avoidance or evasion, but simply be due to error or ignorance. This sort of ‘creep’ has started in some recent legislative measures and proposals, applying comparable time limits and sanctions (penalties) for both deliberate and non-deliberate errors. In our view this is inappropriate, and sets a dangerous precedent for future measures.”
John Cullinane said:
“After so many legislative changes in recent years, 2 the main focus for HMRC should now be on continued investment in data analytics to analyse the large amount of data they now have access to, and ensure that they have adequate numbers of compliance officers with the right kind of training to identify and target illegal activity.”
The Treasury Sub-Committee is examining what progress has been made in reducing the amount of tax lost to avoidance and offshore evasion and whether HMRC has the resources, skills and powers needed to bring about a real change in the behaviour of 'tax dodgers' and those who profit by helping them.
On offshore evasion, CIOT states in its submission:
“There has been a lot of recent legislative change in the area of offshore tax evasion, particularly with regard to penalties, such as the strict liability offence. Added to this, automatic data sharing under Exchange of Information Agreements and the Common Reporting Standard will provide HMRC with a vast amount of information on taxpayers’ accounts held in other jurisdictions. Data analytics is now key to the effective tackling of offshore tax evasion and we hope that resources should be focussed on that rather than adding more and more draconian legislation to the statute book.”
CIOT argues in its submission that HMRC’s focus should turn to addressing the size of the Tax Gap attributable to onshore evasion, criminal activity and the hidden economy. The Government should focus its attention on addressing the “elephant in the room”, i.e. onshore tax evasion and the hidden economy through continued investment in data analytics and increasing the number of fully trained compliance officers within HMRC. The CIOT does not believe that further legislation is required, as the constraints on HMRC’s success do not lie in deficiencies in the legal framework.
The Institute states that, in its view, “the most effective way to reduce illegal activity is to increase the risk of being caught, which naturally requires additional resources within HMRC”.
On avoidance, John Cullinane commented:
“Contrary to popular belief HMRC have a pretty good story to tell on combating tax avoidance. That reflects both legislative changes such as the Disclosure of Tax Avoidance Schemes (DOTAS) regime and the General Anti-Abuse Rule (GAAR) and changes in HMRC’s approach to compliance, as well as shifts in public opinion and the approach of most tax advisers. We would expect that the latest Professional Conduct in Relation to Taxation introduced last April (’PCRT’) has had a positive effect on behaviour and signalled that the profession wants to see no going back to the time when avoidance was more prevalent.”3
CIOT’s submission states:
“Since there has been a great deal of legislative change in this area in the last few years, we would like to see a period of relative stability going forward to allow the changes to bed in fully and to allow their impact to be properly assessed. Frequent change creates real problems for compliant taxpayers and, if insufficiently thought through, creates as well as eliminates avoidance opportunities. This general caution should not prevent the Government introducing specific well-targeted anti-avoidance measures as necessary in order to protect the tax base.”More Articles by Chartered Institute of Taxation (CIOT) ...