Should we call for MORE tax investigations?

When the merger of IR and HMC&E was announced I was privileged to attend a meeting (as a rep of ICAEW) at 11 Downing Street when Gus O’Donnell tried to justify the staff cuts that had also just been announced.

I recall saying to him (and still 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.

In the first year of, what was then, the new Self Assessment system 10 years ago the Revenue seemed to be adopt a generous and laid back approach. There were far fewer enquiries even in the final month of the first enquiry window. So us professionals advised our clients to expect more enquiries the following year. But it didn’t happen then either. In fact it never happened.

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.

The Government’s targets seem to place all of the emphasis on the aggregate level of tax, interest and penalties collected through their investigations. I think there should more emphasis on the number of enquiries and investigations. As things stand I’d bet more 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. 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. What do you think?

Taxpayers' Charter - a comeback? Spin? or a worthwhile exercise?

On 10 January Financial Secretary to the Treasury Jane Kennedy stated that:

'HM Revenue & Customs is today announcing that it will begin the process of working with interested parties on the development of a Taxpayers' Charter, which will set out both taxpayer rights and responsibilities in a single accessible document.'

The move is part of the powers consultation and is a welcome development. But what will it mean in real life even if it comes to pass?

Tax doesn't have to be taxing - but it is!

HMRC has been using the strapline "Tax doesn't have to be taxing" in its adverts for some time. Even if it were true in a general sense, it's evidently untrue in the context of our self assessment system. The statement appears in adverts in the press, on radio and on tv. Why does no one challenge this utter nonsense?

[Postscript, Feb 2008. Adam Hart Davies who fronts HMRC's advertising campaign has revealed that he wishes the tax system were simpler. In a Radio Five Live interview he said the system is too complex, especially for the self-employed. Hmm. I wonder how much longer his contract will last?]

Non doms and the £30,000 bung - who will actually pay this?

Hopefully all accountants with non-UK domiciled clients are aware of the announcements made in the Chancellor's pre-budget report last October. Few commentators seem to have appreciated that the objective is evidently NOT to secure payments of £30,000 but rather to force the disclosure of world-wide income and capital gains.

The £30,000 bung will only be an attractive option for the super-rich who would have to pay more than this in UK tax if they disclosed their world wide income.

What seems to be often overlooked is that UK tax will only be payable over and above any local taxes payable on offshore income and gains. Thus if the local taxes are 25% only a further 15% UK income tax would be payable here. If of course the income or gains are not being taxed overseas then the UK tax bill could be as high as 40%.

What levels of taxable income would warrant the payment of the £30,000 bung in preference to 40% tax? Well - An investment of £1.5 million generating a not very exciting return of 5% would yield £75,000. 40% of this = £30,000.

Remember too that if a taxpayer elects to pay the £30,000 this will mean that they will forgo their entitlement to a personal allowance and to the CGT annual allowance. These will no longer be available to anyone who wants to be taxed on the remittance basis (and who pays the £30,000 as a penalty for so electing).