On average, 250 people call HMRC’s Tax Evasion Hotline every day. The hotline, set up in 2006, has attracted widespread public attention. A Freedom of Information request has shown that 40,695 people called the hotline in 2017/2018- more than double the number of reports handled during the previous year.
It is estimated that in the region of £343,500 was paid to informants in financial rewards for reporting suspicious activity last year.
The activities being reported vary widely. From the local builder who is receiving cash in hand, structures offshore where people stock and hide large amounts of money, or even VAT fraud on fine art. Whilst the identity of informants is strictly protected, it is thought that bitter ex-partners or former work colleagues are often the ones who choose to report tax affairs.
HMRC continue to encourage those to report their own tax irregularities, and give incentives to those ‘grassing up’ others who do not follow the same procedure. Informants who tip off to HMRC could receive up to £1,000 if the information leads to a big win for the organisation.
Although every call to the hotline is investigated, only a small number of the whistle-blowers were understood to have received a cash reward. That said, the FOI request discovered that an average payout is 30% higher than it was three years ago.
A spokesperson for HMRC stated that the payment of rewards is at the discretion of the organisation:
The awards are based on what is achieved as a direct result of the information provided and a range of factors determine the amount. The factors include the tax recovered, the estimate of the loss of revenue prevented and other measurable benefits such as the time saved in working compliance cases.
In a statement, HMRC could not provide precise figures as to how much tax was recovered due to the tax evasion hotline as reports are often not ‘stand alone.’ However, the tax recovered £30.3bn via its wider work to crackdown on error, evasion and avoidance.
Penny Ciniewicz, HMRC’s director general of customer compliance, stated that “intelligence received from the public makes a contribution to our work, closing the tax gap and funding our vital public services.”
The Exchequer missed £14bn in lost revenue to deliberate non-compliance last year. HMRC figures show tax evasion and the cash-in-hand, or hidden, economy accounts for £8.5bn.
Sources of aggressive tax planning, avoidance, evasion and non-compliance vary widely. Some of these are listed below (sourced from Measuring Tax Gaps 2017):
- Taxpayer errors (10%)
- Failing to take reasonable care (18%)
- Differences in how to interpret legislation (18%)
- Organised criminality (15%)
- Evasion (15%)
- Avoidance (5%)
Measuring Tax Gaps 2017 report interesting statistics in terms of contributors to this so-called –tax gap’ coming from:
- Small and medium sized businesses (46%)
- Large businesses (29%)
- Criminals (15%)
- Individuals (11%)
What are abusive tax arrangements?
Tax arrangements include any agreement, understanding, scheme, transaction or series of transactions.Tax arrangements are defined as ‘abusive’ if the arrangements cannot be regarded as reasonable in relation to the relevant tax provisions. Tax abuse includes:
- the arrangements result in an amount of income, profits or gains for tax purposes that is significantly less than the amount for economic purposes;
- the arrangements result in deductions or losses of an amount for tax purposes that is significantly greater than the amount for economic purposes;
- the arrangements result in a claim for the repayment or crediting of tax (including foreign tax) that has not been, and is unlikely to be, paid;
Who is classed as an enabler of tax avoidance?
An enabler is any person whom in the course of business or likewise enables abusive tax arrangements that are defeated. They are said to help in the design of arrangements, management and marketing of arrangements, as well as participating in them (for example by enabling them.)
What can the penalties be?
A penalty will only arise when a tax payer has entered into abusive tax arrangements, and those arrangements have been defeated. Each person who enabled those arrangements will be liable to a penalty. Abuse tax arrangements are defeated when the tax positon is final, and on the basis that arrangements do not provide anticipated tax advantage. A penalty is payable by each enabler involved in the abusive tax arrangement. The penalty amount is calculated per case; value and total sum are all taken into consideration.
Fees, commissions, bonuses or anything else of value that has been received or receivable by the enabler for enabling tax arrangements are all taken into account, and come under the term ‘consideration.’ The full amount of the consideration received is included in the calculation of the penalty, with no deductions for any costs incurred by the enabler.
As a Regulatory solicitor, I am often asked about the potential penalties for companies, and individuals, facing action in relation to tax matters. HMRC’s desire to target all forms of tax evasion shows no sign of slowing down and the resources being directed towards tackling it are set to increase.
We help clients by ensuring compliance with regulatory standards in addition to comprehensive legal advice and guidance if proceedings are contemplated or brought against an individual or company. We are more than happy to speak to you with regards to your case. For confidential advice and assistance please contact Ison Harrison.