Thursday, August 19, 2010

What if HMRC did the same as SOCA?

A comment on a recent blog post here has drawn my attention to a report in the FT: Deterrent letters put criminals on notice.

It seems that the Serious Organised Crimes Agency (SOCA) is writing to known criminals when they leave the country to tell them their departure has been noted and to “wish them a nice time”. And "welcome back" cards are sent to them on their return through ports and airports.

Apparently the rationale for this is the idea of rational choice theory, where people weigh up the potential benefits and costs of their actions. The cards and letters are intended to say to the individual: you have to make a choice, you can either play the game or not. And that every action and choice has its consequence.

I remember when the Disclosure Of Tax Avoidance Scheme (DOTAS) regime was first introduced in 2004. At the time I was Chairman of the ICAEW Tax Faculty and had many discussions about DOTAS with colleagues and Revenue personnel. I don't recall anyone referencing rational choice theory but I'm sure DOTAS was intended to have a similar impact to SOCA's letters and cards. The idea being that only the most positive risk takers would want to flag their involvement in structured tax avoidance schemes.

The practice seems to have been quite different. Many promoters (especially the naive and deceitful ones) tell taxpayers that DOTAS means the Revenue have approved the scheme. They haven't and they now make this clear on the Spotlights page of their website. Nevertheless taxpayers have NOT found their tax affairs generally bearing increased scrutiny as a result of the obligatory inclusion on their tax returns of their involvement in a registered tax avoidance scheme.

It's too late now but can you imagine the impact if, over the last 6 years, HMRC had written to everyone with DOTAS numbers disclosed on their tax returns? Such letters could have thanked taxpayers for complying with the law. The letters would also have explained that the taxpayer's affairs would now be under increased general scrutiny. This would only have had the desired impact of reducing interest in discloseable schemes if HMRC were seen to carry through with their threats. In practice they don't have the resources to do this. And these days any such letters would therefore be dismissed by the promoters of schemes as empty threats.

Do you agree? What do you think would be the impact of such letters?


  1. HMRC still have the advantage of the "will they / won't they investigate" conundrum. Risk analysis on the chances of an investigation doesn't mean much if you are actually picked. Many people will want a quieter life and not run the risk.

  2. Exactly Edwin. The fear factor works very much in HMRC's favour.