Like it or not, HMRC has as the Chancellor said it would at the last Budget Statement, been given greater powers and more money in its efforts to close in on the approximately £35 billion of tax that is calculated to be lost annually. The toughened approach to tax collection and investigating tax evasion reflects the Revenue’s target to raise £7 billion a year by 2014–15. That target looks achievable, what with the additional 200 investigators employed in the past three years that has turned the HMRC Investigation team into an army of 1,600 highly trained, specialist investigators.
An HMRC army to recoup a mountain of lost taxes?
- The number of HMRC self-assessment inquiries in 2012–13 was 237,215—up from around 119,000 the previous year. That is a 99% increase.
- Since 2011–12, investigations into the self-employed have quadrupled.
- The number of annual prosecutions has jumped seven-fold in three years.
- In 2012–13, HMRC collected £609 million in tax, compared with £441 million the previous tax year. That is an increase of more than one-third, or 72.5%.
- The Investigation department’s revenue from compliance activity since 2005 has almost doubled to £14 billion.
So an army of investigators, who are they investigating?
The self-employed and people who earn additional income through the self-assessment tax system. Property investors have been singled out, these include buy-to-let landlords, property developers and house-sellers; retailers have been targeted, including those who run market stalls, boot sales and trade online. The "professions" have also been targeted, including barristers, doctors and dentists, and, more recently, self-employed healthcare workers. In the trades, electricians and plumbers have been on the radar, as have taxi drivers.
What should you do?
Declare everything and do it on time: DNS are experts in tax planning; we make sure you save tax legally, so what is the point in not declaring income? Use Finac, keep you accounts up to date, answer our emails, get all correspondence relating to your accounts to us and do not ignore things. File on time and pay on time.
Make sure you have tax investigation insurance: HMRC says it will do "everything" in its power to keep closing the tax gap—the difference between tax owed and what HMRC collects. Therefore, anyone who earns income that is not taxed at source stands a chance of being investigated. Tax investigation insurance covers all the many hours of work and the expertise needed if you are investigated: having the information collated, someone to liaise with HMRC on your behalf, and supply the expert representation you will need, if necessary, at a tribunal or in the courts.
Read our recent blogs on declaring second income, benchmarking, and the sort of steps HMRC is taking to collect the money owed.