UK tax evasion crackdown expected to net £2.2bn

A crackdown on tax evasion and avoidance is expected to raise £2.2bn by 2025-26 for the UK government.

The package of measures to tackle non-compliance was unveiled by chancellor Rishi Sunak as part of his Budget plan to fix the pandemic-battered public finances.

They include a new tougher penalty system for VAT-paying businesses and self-assessment taxpayers who submit and pay their taxes late, which is expected to generate an additional revenue of £405m by 2025-26.

Sunak also confirmed the creation of a £100m Taxpayer Protection Taskforce, staffed with 1,265 HM Revenue & Customs officials, which will seek to recoup billions of pounds wrongly claimed from pandemic support schemes.

Coronavirus-related fraud is a growing area of concern for the government. HMRC estimates that fraud and error amounts to £3.5bn for the furlough scheme alone.

“Catching tax cheats will be a key part of the government’s action to repair the public finances,” said Dawn Register, head of tax dispute resolution at accountants BDO. “HMRC has a rich pool of data to identify suspicious claims and grants, and we expect a flood of new inquiries.”

However, George Bull of RSM, another accountancy firm, said while increased investment in compliance was welcome, the increased tax take from the crackdown would “not be a game-changer” in the wider context of losses due to tax evasion.

HMRC has estimated that £4.6bn in tax revenue was lost to evasion in 2018/19, rising to £11.7bn when losses from criminal attacks and the hidden economy are included.

Under the penalty system announced on Wednesday, taxpayers will no longer receive an automatic penalty if they fail to meet a submission deadline. Instead, they will incur points for missed obligations and at a certain threshold HMRC will issue a £200 penalty.

The changes will come into effect for VAT taxpayers for accounting periods beginning on or after April 1 2022. From April 2023, the system will cover self-assessment taxpayers with annual business or property income of more than £10,000, who are required to submit quarterly updates under the government’s Making Tax Digital programme. All self-assessment taxpayers will be subject to the penalty regime from April 2024.

Other enforcement measures announced on Wednesday included a tightening up of the rules for money wrongly paid under the Self Employment Income Support Scheme.

For the fourth and fifth rounds of the scheme, HMRC will be able to recover grants where the recipient was entitled to the money when making a claim but subsequently ceased to be entitled. The measure aligns the SEISS with the Coronavirus Job Retention Scheme.

New powers will enable HMRC to require UK digital platforms to report information about the income of sellers of services on their platform, to be shared with international tax authorities.

It will also become an offence to make the possession, manufacture, distribution and promotion of technology that manipulates electronic sales records to hide the value of transactions.

Tougher action is planned for those creating and advertising tax avoidance schemes — particularly so-called disguised remuneration schemes, such as the loan schemes, which were subject to a crackdown in the past two years.

The government also plans to strengthen existing anti-avoidance powers and toughen up the rules designed to tackle promoters and enablers of tax avoidance schemes in the next finance act.