Doubts emerge over Lib Dem tax policy

Danny Alexander

Westminster has spoken and tax chiefs in Whitehall must now fall into line
and find an extra £7bn of revenues by clamping down on avoidance and evasion.

HMRC has been given the unenviable task after Danny Alexander, the Liberal
Democrat chief secretary to the Treasury, announced plans to be ruthless on rich
people and corporates who “think they can treat paying tax as an optional

These are rousing words, but at a time when HMRC is bracing for the prospect
of a heavier workload with less staff, how can this work in practice?

Alexander said £900m is to be earmarked for the HMRC enforcement teams tasked
with making sure 150,000 people and businesses pay their full tax liabilities
during the next five years, but there are concerns that staff may not have the
experience to do their job properly.

Increasing activity

Tax experts have noticed that experienced HMRC workers have left or been made

redundant from the department and in this context have warned that if this
continues, the government’s target is unrealistic.

“The experienced people bring in more revenue than it costs to employ them,
so it’s a no-brainer [to retain them],” said Richard Mannion, national head of
tax at Smith & Williamson.

Advisers see a problem with HMRC being told to investigate all 150,000 people
believed to be 50% taxpayers. HMRC reportedly probes only 5,000 at the moment.

But to achieve its £7bn objective it will have to increase its activity as
the department pushes staff cuts through.

The £900m has been earmarked for the enforcement department but it will rely
heavily on other parts of HMRC such as local offices and call centres, to
achieve its goal.

But these supporting divisions will not be spared staff cuts. Existing policy
decisions will cut 25,000 jobs and close more than 200 offices by 2011, which
raises questions as to whether the crackdown will be affected by a general
reduction in headcount.


Clash of policy

A second obstacle to hitting the £7bn target is what appears to be another
policy clash, but this time between the taxman and the government.

On the one hand the government’s latest rhetoric is focused on coming down
hard on avoidance and evasion, but HMRC is currently running a number of tax
amnesties for offshore account holders, and medical professionals.

The £7bn target is dependent on prosecution penalties of up to 200% in the
most serious cases. However the Liechtenstein Disclosure Facility, which has not
had the uptake expected so far, gives offshore account holders the chance to
come clean about their unpaid tax liabilities in return for a penalty as low as
10%, and it could become a lot more attractive now, advisers say.

If the government is to collect anything like the £7bn in additional tax
revenue, it will be founded upon many people who snub the chance to put their
tax arrears right paying very large tax bills – and some will fight these
disputes in court.

The government intends to increase the number of prosecutions fivefold, but
this brings up more problems. Firstly, court cases are expensive. Secondly, the
duration of disputes – especially in the case of multinational companies – may
stretch longer than the 2015 deadline for bringing in the revenue.

Jason Collins of law firm McGrigors said HMRC’s record in taking tax criminal
investigations all the way to court and securing convictions was “lamentable”.

“It’s a big ask to expect HMRC to improve its success rate by 500%, without
it making many more mistakes.”

There is also a fear that if the government is to reach its target it will
have to cast its net wider than just rich individuals. Everyone from taxi
drivers to freelance contractors could be under the spotlight as the government
looks to hit its target.

“Tax avoidance and evasion are unacceptable in the best of times but in
today’s circumstances it is morally indefensible,” said Danny Alexander.

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