Wednesday, January 23, 2008

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?

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