Osborne announces ‘new funding’ of £77m for HMRC

‘New’ funding of £77m is to be made available for HMRC in the current spending review period to enable the department to expand its anti-avoidance and evasion activities, specifically ‘focusing on offshore evasion and avoidance by wealthy individuals and by multinationals’.

George Osborne, anticipating today’s Commons public accounts committee report criticising tax avoidance by large multinationals, told the BBC yesterday that he would announce additional funding for the part of HMRC that deals with the tax affairs of large companies.

But the package announced today includes the expansion of HMRC’s affluent [individuals] unit with ‘100 extra investigators and additional risk and intelligence staff’, and more ‘specialist personal tax inspectors’.

Taken together with the spending review 2010 reinvestment of £917m, the government will have reinvested ‘around £1bn’ in HMRC over the current Parliament and expects HMRC to deliver additional revenues of £22bn in 2014/15, £9bn more a year than in 2010/11, HM Treasury said today.

But PCS, the union representing HMRC staff, said the amounts reinvested in HMRC were ‘dwarfed by £3bn in cuts to HMRC's budget announced in the spending review in October 2010, including 10,000 job cuts’.

ARC, the union representing senior HMRC staff, welcomed today’s announcement but said there was much more that could be done to close the tax gap. ARC president Gareth Hills said: ‘This investment is a welcome one, but the government should be considering a wide range of further investment measures to recover the avoided billions. The well-resourced tax avoider can only be countered by a well-resourced HMRC – and that means long-term investment to not only recruit but also retain tax professionals.’

The chancellor said: ‘The government is clear that while most taxpayers are doing their bit to help us balance the books, it is unacceptable for a minority to avoid paying their fair share, sometimes by breaking the law.

‘We are determined to tackle this problem and HMRC are making good progress, but we are giving them additional tools to bring in more.’

Danny Alexander, chief secretary to the Treasury, said the government was investing additional resources into HMRC ‘so that it can step up its fight against tax dodgers and bring in an extra £2bn per year by 2014/15’.

The new reinvestment will fund specific activity, the Treasury said, including:

• ‘Bringing in more people and additional legal support to speed up HMRC’s work to identify and challenge multinationals’ transfer pricing arrangements and further strengthen their risk assessment capability across the large business sector. This will help to ensure that multinationals do not shift profits out of the UK and therefore pay the tax due in accordance with UK tax law;
• ‘Expanding HMRC’s Affluent Unit with 100 extra investigators and additional risk and intelligence staff to target avoidance and evasion by the wealthy;
• ‘Increasing the number of specialist personal tax inspectors to tackle offshore evasion and avoidance of inheritance tax using offshore trusts, bank accounts and other entities, focusing in particular on the agents and tax intermediaries involved;
• ‘A new “centre of excellence” within HMRC to bring together and enhance its expertise in tackling offshore evasion. The team will be made up of HMRC staff and external experts who will look at how HMRC can best use data to identify offshore tax evasion, review HMRC’s legal powers and work with other tax administrations to close the net on offshore evasion;
• ‘Improving HMRC’s CONNECT computer system so that the department is able to better identify areas of compliance risk.  This will allow HMRC to act swiftly in identifying and investigating fraudulent behaviour;
• ‘Increase capacity to tackle aggressive avoidance schemes, including long-running cases involving partnership losses by creating a settlement opportunity that offers a good deal to the exchequer and proceed more quickly to litigation for cases HMRC does not settle.’

Other action detailed in today’s Treasury press release included:

• the UK-US agreement, signed in September, to implement the US Foreign Account Tax Compliance Act (FATCA). A consultation on implementing the agreement closed last week; and
• steps to ‘close the net on the marketers of aggressive tax avoidance schemes, including the introduction of new information disclosure rules and HMRC sanctions for the “cowboy” advisers who sell such schemes’. HMRC said in August the government would explore the suggestion, put forward by CIOT president Patrick Stevens, that financial services mis-selling rules might be extended to promoters of schemes that ‘patently do not deliver the advertised tax advantages’. Consultation on measures to tighten the disclosure of tax avoidance schemes (DOTAS) regime closed in October.

The government will now consult on proposals to introduce ‘significant new information disclosure and penalty powers to make it more difficult for the marketers of abusive schemes to continue to promote them in the future’. It will strengthen the DOTAS regime in 2013 to ‘improve the information HMRC obtains about avoidance schemes and the people who use them and widen the range of schemes required to be disclosed’.

HMRC has published Closing in on tax evasion, a guide to its approach to ‘a small minority’ who break the law by deliberately evading their taxes. The guide sets out the action HMRC is planning to take in the next few months and in the longer term.

andrew.goodall@lexisnexis.co.uk