Government focuses on recouping unpaid taxes
Apr 08, 2021
In its recent Budget and Tax Day announcements, the government placed considerable emphasis on its plans to recover unpaid taxes. The impact of COVID-19 on tax revenues and the tax gap is proving to be significant. Although the government’s priority has been to support individuals and businesses through the financial pressures caused by Covid, at the same time the pandemic has increased the risk of unpaid taxes and of more people deliberately trying to flout the system.
Covid anti-fraud taskforce
In his Budget on 3 March 2021, the Chancellor Rishi Sunak revealed that a new anti-fraud squad has been created, called the Taxpayer Protection Taskforce. It is being funded by the Treasury to the tune of £100m, and will have the sole intention of cracking down on any instances where the government’s COVID support schemes have been abused.
The new HMRC taskforce will consist of a team of about 1,000 investigators, who will examine any fraudulent claims through the use of schemes such as furlough and the Self Employment Income Support Scheme (SEISS). This represents one of the largest responses to a fraud risk by the tax office.
Some of the false claims include businesses that have chosen to furlough more people than they actually employ, or have claimed furlough grants when workers have continued doing their jobs. Other instances include Bounce Back loans taken out by businesses who don’t repay the loan, or who borrow more than they are entitled to. HMRC has already opened approximately 10,000 enquiries into such kinds of suspected fraudulent activity, and in some instances it has begun criminal investigations.
Closing the tax gap
The government has pledged to crack down on business and individuals who take steps to avoid paying the right amount of tax. Among a host of consultations the government is holding on the UK tax system, it has published details of its approach to non-compliance with tax rules. Its action on tax avoidance falls into four main categories:
- Promoters of tax avoidance
The government is planning to renew its focus on promoters of tax avoidance schemes, which will include allowing HMRC to secure or freeze a promoter’s assets to ensure that they pay any penalties levied against them.
- Disguised remuneration tax schemes
Disguised remuneration schemes encourage people to avoid paying tax on their income. The government wants to educate taxpayers about the risks of becoming involved with such a scheme, and provide support to help them identify and avoid scheme promoters.
- Off-payroll working rules
These rules are more commonly known as IR35, and designed to ensure that people working like employees but through their own limited company or other intermediary, pay essentially the same income tax and national insurance as those who are directly employed.
- Safe havens
The government is keen to dispel the idea of there being any ‘safe havens’, where taxpayers can avoid paying what they owe. The focus will be on ensuring that everyone complies with their tax obligations, regardless of where their income or gains were made.
Another key policy is the tightening of rules on holiday lets. Currently, second home owners in England can register for business rates (from which they can usually obtain relief) instead of paying council tax, even if their property isn’t actually let out. New rules coming in mean that the property has to be rented for a substantial part of the year, in order for it to be possible to register for business rates.
The Treasury has reported that despite a record low tax gap of 4.7%, HMRC received 73,000 tax evasion reports last year, an increase of 10%. Its aim is to reduce the tax gap yet further, by removing sources of error as well as tackling tax avoidance, evasion and other forms of non-compliance.
Simplifying tax administration
HMRC is keen to improve its administration of the tax system. It hopes that this will also help to close the £31 billion tax gap, seeing as so much is lost through error. It is looking at improving communications with taxpayers and enhancing payment processes. Proposals have been drawn up for taxpayers to make more timely payments through HMRC’s digital portal, to help close administrative loopholes, crack down on tax avoiders and reduce unpaid taxes.
If you have any concerns about getting your tax payments correct, or what to do if HMRC wishes to investigate you, please don’t hesitate to get in touch. We’re pleased to offer a fee protection service at Paish Tooth, to cover you in the event that HMRC opens an enquiry into your tax affairs.