HMRC Is Shite

HMRC Is Shite
Dedicated to the taxpayers of Britain, and the employees of Her Majesty's Revenue and Customs (HMRC), who have to endure the monumental shambles that is HMRC.

Friday, 1 March 2013

HMRC's Little List

Stewie - Little List

HMRC recently "named and shamed" nine "deliberate tax defaulters", ie tax evaders.

On the list comprising individuals and companies were, amongst others, a hairdresser, a coach operator and a knitwear manufacturer.

The total amount owed by those listed came to less than £1M.

Deliberate defaulters can be named where, during an investigation into a period starting on or after 1 April 2010:

  • it is established that the taxpayer is liable to a penalty for a deliberate default; and
  • as a result of the deliberate default, more than £25,000 of additional tax would have been lost without HMRC’s intervention; and
  • the taxpayer has not received the maximum possible reduction in penalties for full and early disclosure and co-operation.

Details are published only once all appeal routes against the related tax and penalties are exhausted. If details are to be published, this must be done within 12 months of the penalty becoming final.

HMRC's view is that naming and shaming them is designed to “influence the behaviour of the minority of taxpayers who may be tempted to understate their tax liability or not tell HMRC that they are liable to tax”.

An HMRC spokesman was quoted in the Telegraph:
We will relentlessly pursue those who engage in evasion, with serious consequences for those who don’t pay all the tax they owe, from financial penalties to criminal conviction.”
The question that this raises is whether the naming of those at the lower end of the tax evasion problem (ie the "small fry") is merely a cheap publicity stunt designed to deflect people's attention away from other more pressing failings within the tax system as a whole?

Tax does have to be taxing.

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  1. It seems as though HMRC has as much understanding of human nature as the Conservative party has of the UK population in the aftermath of the banking debacles and the state of the economy.

    The moral high ground was given away some time ago by the tax authorities and the politicians. To believe that naming and "shaming" is going to work is being naive. Far from encouraging, let alone forcing people into compliance it is going to make things worse as the true injustice is realised.

    Time will tell,
    "power to the people!" (Wolfe E Smith)

  2. Heh Ho Ken & Co.


    As ridiculous as it sounds, the federal government requires that money acquired through illegal means be reported and taxed just like legitimate income. It’s right there on the official IRS tax instructions: “Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity.”

    From ATS link -

    Surprised the IRS dreamt it up before the comedians on this side of the pond?

    1. Yawn.

      I'm not sure whether it's specifically mentioned in tax returns, but the illegality of an activity hasn't stopped it being taxable in the UK since (at least) 1932.

      And why on earth shoul it?

      Stew G

  3. "The question that this raises is whether the naming of those at the lower end of the tax evasion problem (ie the "small fry") is merely a cheap publicity stunt designed to deflect people's attention away from other more pressing failings within the tax system as a whole?"

    Well, maybe. Two points, though:

    1) Sad to say, a very large number of people evade small amounts of tax and a much large number of people have the opportunity to do so but choose not to (i.e. everyone with income that's not taxed at source). There is a legitimate debate to be had about how harshly it is appropriate to punish the small number of evaders who get caught, but if you can take action that acts as an effective deterrent, moving them from the first category to the second, then that can be very valuable. (Of course, the first commenter's point about whether naming and shaming serves as an effective deterrent is another question. I see a lot of those named are from the north west of England - I wonder if they're doing a trial to ascertain just that?)

    2) HMRC is, as you point out, only able to name and shame where the investigation started after 1 April 2010, but bigger evasion cases generally take longer to complete. There are also just less of them because higher rollers tend to bend rules rather than break them and in so doing take steps to ensure that, even if their "planning" doesn't work, they don't get hit by a penalty. Finally, really big evasion cases are more likely to be prosecuted, which would take them out of the scope of this initiative. For all of these reasons, it's entirely predictable - though still somewhat disappointing - that the majority of the names released so far are smaller fry.

    Stew G

  4. Stew G

    You seem to be "in the know". Where in all of this would you place those individuals with undeclared income held in Swiss accounts who seem to have been granted anonymity providing they pay tax due plus interest and penalties (I think)? None of these voluntarily came forwards - or at least not before they knew the writing was on the wall. My real gripe is that I have no doubt that amongst these are many high wealth individuals who by what was HMRCs one-time criteria for prosecution, and I paraphrase, "are in a position of power or authority where they really ought to know better". Let us imagine that one of these individuals was a member of the House of Lords, an MP, or even a member or ex member of HMRC? Would it be right that such individuals, if they exist, are granted anonymity whilst the people in the North West are named and shamed?
    I recall that Julian Assange had a list at one time, which he has never published, that he said included (world wide) Heads of State, Politicians etc. All evading tax. I just think it is one rule for us and one for them.

    1. I'm afraid I'm not particularly "in the know" about the offshore disclosure "opportunities", so I don't know what's in the pipeline.

      I agree, however, that the system as a whole is massively and unacceptably stacked towards those with money and power.

      I would be quite surprised, however, if there are many MPs who have been guilty of evasion. If they have, they should of course be hung out to dry. If they are making dubious tax savings, such people are much more likely to be engaged in avoidance (which, unlike Ken, I use to mean arrangements intended to legally produce a tax saving not intended by Parliament).

      In principle, I'd be all for a naming and shaming regime on avoidance, but it would be very, very hard to put into practice. By definition, avoidance almost always comes down to an argument over the correct interpretation of tax law. If you were to publish the name of everyone who had such a dispute with HMRC (or even just everyone who lost or conceded on such a dispute) it would open up a real Pandora's box and would potentially set a very dangerous precedent. Would you be more or less likely to assert your rights against the Government if you risked having your name dragged through the mud for doing so?

      Evasion, on the other hand, is much more black-and-white. As I say, the system is stacked in favour of the rich and powerful and this is an example of that (though let's not lose sight of the fact that those named had each stolen tens of thousands of pounds from the public purse!) Unfortunately, however, there are no easy answers.

      Stew G

    2. Thank you for taking the time to reply. I just wish someone would ask Cameron, Milliband and Clegg one simple question: if HMRC were aware that a member of your government/opposition was or had been involved in tax evasion would you expect that that individual should be named and shamed?

  5. The Mail On Sunday article P12 & p13 plus central editorial para on p27 kind of take the wind out of HMRC's sails, somewhat foreseeable in the circumstances.
    When you read that the likes of Vodaphone and G4S are not only avoiding paying huge amounts in Corporation Tax but actually going on to receive millions in Tax Credit as well then HMRC's approach beggars belief.
    1 in 4 or 25% of these massive companies is up to it, I suggest you read the fairly short editorial if nothing else.
    As for "yawn" again, Stew G, predictable as ever, but keeps one from falling asleep.

    1. Financial Mail of same date, p.71/72 showa some interesting figures against companies tax paid or claimed.

    2. The government are outsourcing the prison service to G4S - rewarding their behaviour even after the Olympic farce. David Cameron's father advertised he could help companies avoid tax in the UK - there is no chance they will publicly name big companies too many seat on directors boards waiting for them as they go through 'the revolving door' - I see Jack is now working for a bank

    3. "yawn" again ... but keeps one from falling asleep

      Make your mind up! :)

      Naturally I don't take the Mail, but I did find this which I assume is one of the articles to which you refer.

      It's hard to know where to start, really.

      That article does not provide a single shred of evidence that any of the companies features are "up to it". There are plenty of reasons why a profitable company would quite legitimately not pay tax in a given year, which the paper has been entirely unable to rule out.

      The most obvious, which is actually described in the article, is where a business has made a loss in an earlier year. Any business of any size, if it makes a loss, can carry that forward to reduce its liabilities in future years. When you sit down and think about it (not an activity generally encouraged by either the Mail or HMRCisshite, admittedly) this is an entirely logical thing for the tax system to allow. If you make a very large loss, it might entirely wipe out your profits in the next, or even in later, years. We're in an economic downtown - why should it be in the least bit surprising that a lot of businesses, big and small, find themselves in that position now?

      The reference to "tax credits" in the article is utterly misleading, by the way. The credits in question are likely to simply be accounting entries to reflect the fact that the companies' tax liabilities in future periods are reduced because of losses in the past. It's simply an accounting convention, and does not mean that the government is giving them some money, as is implied by the choice of words "tax credit".

      They also seem to have picked on at least one company that isn't paying tax here because it's not got any operations here. Just because its shares are listed on the London Stock Exchange, why should it not, like everyone else, based on where its economic activity is? Having its shares listed in London doesn't mean that it has any activities here.

      Now we can put this all down to sloppy, poorly-researched journalism, but the problem it creates is that all the noise created by nonsense like this masks some of the real problems with corporate tax in the UK.

      None of the above is what I would call "avoidance", which is most usefully defined as arrangements intended to legally produce a tax result different from that which Parliament intended. (In fact, I wouldn't even class the losses thing as "tax planning", but I'll not go into that here for fear of sending you to sleep again!) There are plenty of large businesses out there (possibly even including some of the ones named by the Mail) that certainly do what I would call avoidance. There are even businesses and people from overseas who, in cahoots with UK businesses, launch what can be described as raids on the UK exchequer! Such shenanigans cost the government hundreds of millions a year.

      However, by misleadingly focusing, as the Mail has, on tax savings which are entirely uncontroversial, they do two things:
      - they divert attention from the ones who are really at it and
      - they confuse avoidance (as per the definition above) with entirely legitimate reductions in tax liabilities. Those who argue that legal loopholes should remain open are then able to capitalise on this confusion by arguing that any new anti-avoidance measures are intended to prevent people from making legitimate tax savings.

      Stew G

  6. So, in order to generate a reduced tax liabilty these companies employ low pay or borderline low pay employees, source their over priced retail goods via countries that employ child labour in appaling/dangerous conditions, "source" coffee in Switzerland FFS! I thought it was only Toblerone and cuckoo clocks that came out of there? Then, via a series of spurious "management/service charges" they further inflate their costs which combined with a few other nefarious "investment/overseas development" schemes ensures a reduced or even negative liability?
    Still, if it wasn't for the likes of you Stew we would have a relatively quiet time these days.

    Keep it up, doesn't matter that its predictable really.

    1. I never said that big companies don't engage in unacceptable schemes. In my posts here I have always argued (often against Ken) that more needs to be done to tackle them. I said that the Mail on Sunday article didn't present any evidence that dodgy schemes had been used by the companies in question.

      You would of course have realised that (and perhaps that these aren't "negative liabilities") if you'd read to the end of my comment, so maybe it's an attention-span issue.

      Still, it's good to come across someone else on here who feels aggrieved by corporate tax (and other) abuse. Perhaps you might like to direct your energies against Ken's monotonous line that all tax avoidance is legal and is therefore entirely morally, economically and politically acceptable and should remain legal!
      Stew G

    2. There We Are Then!