Tax Evasion

The Government have announced radical new plans to give HM Revenue and Customs the power to "name and shame" individuals and companies who fail to report the full extent of their earnings in an effort to curb tax evasion and plug the gaping holes in the public finances.

These new plans were introduced as part of a larger framework of measures in this year's budget in an effort to protect tax revenues. Alistair Darling announced his intention to tackle legal tax loopholes which he said: "undermine fiscal sustainability and damage the delivery of policy objectives." He hopes that the Budget 2009 will build on the previous progress by further tackling evasion and robustly challenging avoidance, raising over £1 billion during the period of 2009-10 to 2011-12, and protect a further £3 billion of tax receipts a year by 2010-11 from tax evasion and avoidance.

The Chancellor also announced a disclosure opportunity on those using offshore bank account to evade tax. This "New Disclosure Opportunity" will run until March 2010. It is an invitation to people with offshore accounts to disclose if they have fail to pay tax on interest or on dividends and settle with HMRC. This continues a similar policy enacted in 2007 where tax offenders who disclosed their benefit were given a 10 per cent fine. However, HMRC have threatened to pursue those who do not disclose and in an earlier announcement in the Sunday Times HMRC said they had a number of high profile prosecutions planned.

Under the plans, which will be debated by Parliament later this year in the Finance Bill 2009, will be measures to:

• legislate for the publication by HMRC of the names of both corporate and individual tax payers who incur a penalty because they have deliberately understated more than £25,000 of tax;
• establish a statutory requirement for senior accounting officers of major corporates to certify personally that adequate controls to prepare accurate tax computations are in place; and
• require those who have incurred a penalty for deliberate understatement of over £5,000 of tax to provide more information about their tax affairs for up to five years to ensure they have proper systems to be able to make a correct tax return.

In the event that these proposed plans are passed, HMRC will be able to publish details about tax evaders on a quarterly basis sufficient to identify the tax payers, including their name, address and the amount of tax evaded. This is in keeping with the current policy of HMRC publishing the details of convicted offenders. However, over the past 6 months with the banking crisis public perception has changed and these measures may meet with more approval than they once would have.

The Treasury has said that anyone who made an "unprompted disclosure" or even a "prompted disclosure" in a given time period would not face "naming and shaming". In addition no publications would be made for matters under to an independent tribunal, now known as the tax tribunal.

However, there are already concerns over these measures. Accountants claim that they may lead to confusion as unlike tax evasion, which is illegal, tax avoidance describes legal means of reducing tax bills.

A representative of the Association of Chartered Certified Accountants, has queried where HMRC will they draw the line between tax avoidance and evasion. There may be problems working out what this means in practice. Tax considerations are a legitimate part of many transactions.

A number of concerns have been expressed as to whether HMRC's campaign to publish a blacklist could be used by tax inspectors to encourage non defaulting taxpayers to accept HMRC®s stance through fear of appearing on the list.

We will need to wait and see whether these plans are enacted by Parliament and what their effect will be. But what is clear at this stage is that they can be seen as a bold new approach for HMRC and mark a radical departure from the previous approach of treating tax payer confidentiality as a cornerstone of the UK tax system.