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KEY POINTS
- Names of tax defaulters to be publicised.
- Will this discourage tax evaders from coming forward?
- HMRC is seeking to change public opinion.
- The CIOT intends not to oppose the measure.
Nestled among the 93 Budget notes issued by HMRC was number 63, entitled Publishing the names of deliberate tax defaulters.
Is this a good idea? Opinions on the virtues or not of this proposal tend to be pretty polarised, as the following arguments show.
For
It is well known that if you ask the man on the street whether he wants to pay tax, the answer is a resounding ‘no!’.
However, if you then relate the tax paid to benefits provided, e.g. a National Health Service, police, education, financial help for the poorest members of society, the answer becomes less dogmatic.
The department has often intimated that not enough has been done to relate the benefits of living in a (relatively) civilised society to the payment of taxes and that a sea change of public opinion is required, similar to what happened regarding drink-driving.
Perhaps publicising a list of those who have defaulted on their tax liabilities could achieve the same effect and be part of HMRC’s larger game plan to make tax avoidance and evasion morally unacceptable.
Devil in the detail
As with so many new measures, the devil is in the detail. HMRC’s Budget note BN63 states that the measure will affect...
‘taxpayers (individuals, businesses and companies) who are penalised for deliberately understating tax due, or overstating claims or losses, of more than £25,000. Taxpayers who are penalised for deliberately failing to notify HMRC when required to do so, leading to a loss of tax of more than £25,000. Taxpayers who are penalised for deliberately committing certain VAT and excise wrongdoings, leading to a loss of tax of more than £25,000.’
Those who fall within these parameters will have their ‘names and details’ (addresses and trades or professions) published on quarterly lists which will remain in the public domain for one year from publication.
Similar schemes
The Revenue authorities in the Republic of Ireland have been running a similar scheme for some time, apparently with success, and the quarterly lists are on the internet.
These list name, address, occupation, the number of charges and the fines levied, although not the tax defaulted.
A brief trawl through the list for December 2008 appears to indicate that those listed tend towards the ‘small fry’ rather than the ‘big fish’ of the tax evasion world.
If this experience is repeated in the UK, it will not do anything to dispel the view that HMRC are happy to pursue the ‘little guy’ rather than the more serious tax defaulters.
And I am forced to admit that anyone who saw the recent Panorama television programme on the efforts of the Asset Recovery Agency (now part of the Serious Organised Crime Agency) to obtain recompense from those who have stolen millions of pounds from taxpayers will not have been encouraged by the abilities of civil servants in that regard.
Will the listing affect the individual’s relationship with family, friends and neighbours?
Particularly if a defaulter has been living a life of conspicuous consumption, one is inclined to think that their friends and relations may come to the conclusion that they are effectively helping to fund this. It is this sort of social unacceptability that HMRC are presumably seeking to instil as a result of this proposal.
Potential defaulters might also want to consider the possible adverse effects that naming and shaming might have on their business activites (or indeed employment prospects).
Will this affect their credit rating? If you are a lender, would you want to lend money to someone in the habit of defaulting on their tax liabilities and who therefore might at any moment be delivered with an outstanding tax bill, which could lead to bankruptcy?
Similarly, if you were a supplier to that person’s business, would you be quite so happy to extend credit to them?
I note that Allison has blogged on the subject, positing the case of a child being picked on at school because her father had wrongly been listed as a defaulter.
I suppose that if I was being flippant I would suggest that this will help HMRC’s case. By instilling the unacceptability of tax evasion and the possibility of consequent public humiliation at an early age, the hope might be that these memories will remain into a taxpaying adulthood.
HMRC say that ‘details will not be published until all appeal avenues… are exhausted or expired’ and if the department wishes to avoid further adverse publicity – along the lines of Dave Hartnett having to admit that each year HMRC bankrupt approximately 100 taxpayers by mistake – they will need to ensure that they exercise utmost due diligence here.
Drawing the line
As with many measures, it is often a matter of degree and a question of where one draws the line. Presumably at a tax loss of £25,000, but will this help everyone?
A Readers’ Forum question recently raised the query of an item included in accounts as revenue but HMRC had taken the line that this was a capital expense.
The case law and guidance on the subject was inconclusive. If it is subsequently agreed that there is a tax liability of more than £25,000, will the taxpayer’s name appear on the list?
Presumably not as the Budget note states that ‘those who make an unprompted disclosure or a full prompted disclosure within the required time will not be affected’.
Again, HMRC will need to ensure that this standard is rigorously applied. If not, the naming and shaming is likely to have the opposite effect, and taxpayers may decide to risk the possibility of discovery by HMRC.
Conclusion
I see that the CIOT, no less, has no immediate problems with the idea, saying:
‘The Chartered Institute of Taxation supports the stamping out of tax evasion and will not be opposing this measure as long as it is targeted only at deliberate tax offences. It supports setting a de minimis amount.’
The institute adds that it would be unfair to use this against someone who has a genuine disagreement with HMRC or who makes a genuine mistake and, naturally, they will wish to examine the legislation to ensure that it operates fairly.
In conclusion, I see nothing wrong with this measure. The names of convicted tax defaulters are regularly mentioned in HMRC press releases and the newspapers. If someone has voluntarily agreed that they have defaulted on tax, is this akin to accepting a police caution?
A significant element in combatting tax avoidance and evasion is reinforcing the view that it is morally and socially unacceptable – whether the Government or HMRC itself has ‘clean hands’ in this regard is doubtful (just mention the Mapely Group when next discussing this with HMRC), but the alternative is to compare the situation with places like Italy where tax evasion is seen as something approaching a national sport.
Richard Curtis
Against
The idea of publicising the names of defaulting taxpayers was floated in one of HMRC’s earliest powers consultation documents, ‘Modernising powers, deterrents and safeguards’, published in March 2006:
‘5.25 The Review should, therefore, consider the impact of both formal and informal publicity, in maximising the deterrent effect of criminal and civil interventions.
For instance, as well as media campaigns, what is the impact of those who have been caught not complying relaying their experiences to friends, family and business contacts?
‘The Review team will be working with the new HMRC Customer Units, Communications and Marketing and other colleagues to understand what drives the decision to comply or not to comply. This could include a consideration of the ways in which other administrations publish the names of taxpayers who have committed serious tax offences.’
According to the published response to that document, ‘Most respondents were not in favour of adopting a policy of publicising the names of serious non-compliers, as is done in some other countries.
They were concerned about its effectiveness in encouraging compliance plus the legal implications of this approach.
They believed it would act as a powerful deterrent to voluntary disclosure. Publicity for prosecutions should assist in deterring non-compliance’.
Well quite. It seemed to fall off the radar after this, but has resurfaced in the 2009 Budget.
There are many reasons why this is one of HMRC’s worst ideas. As stated above, why would this encourage compliance?
If taxpayers thought their name might appear on a tax defaulters’ list, what incentive is there to come forward? HMRC say that those who take ‘reasonable care’ will not be at risk, but what is reasonable care?
The legislation, if it goes ahead, will require very close examination to ensure that HMRC have very stringent guidelines as to who they can name.
Individuals who have disagreed with HMRC over a technical matter or have made a genuine mistake must be protected. Given that the tax legislation is so complex, it would have been wise to have simplified the legislation before introducing this draconian measure. It is not good enough to say to taxpayers, whose first priority is rarely tax, that ‘you should know’.
How will it help?
Naming an individual could do untold harm to his business, possibly even put him out of business, making him a drain on the taxpayer as he has to live on state handouts, and will be unable to pay back any tax. Is this what HMRC want?
Then there is the risk of individual members of the public taking matters into their own hands. If the name and address of a defaulting taxpayer is publicised by HMRC, the idea must be that the press will pick up the information and publish it in local papers, in the national press even. What is to stop someone going to that taxpayer’s home and throwing a brick through the window or generally barracking him? Surely we have moved on since the time when people were put in the stocks. The likelihood of this happening is only too obvious:
- Sir Fred Goodwin’s house was damaged by members of the public who apparently felt they were entitled to do so because of his well-publicised pension entitlement.
- In 2000, paedophiles’ names were published by a tabloid. The result was threatening behaviour by members of the public and a misunderstanding of the difference between a paedophile and a paediatrician.
Will HMRC, i.e. the public purse, be paying for police protection?
Innocents
Publicising the name, address, and occupation of the tax defaulter does not just focus unwelcome attention on him.
Are spouses and, worse, children, to be penalised? HMRC are naïve in the extreme if they think that innocent family members would not also be tarnished for being no more than related to the taxpayer.
Taunting in the playground would be the least of the problems: downright bullying and abuse would be more than likely. How will HMRC deal with this?
It is all very well to say publicising tax evaders works in other countries, the same argument could be made that cutting people’s hands off for theft is a deterrent, but it is nice to think that the UK takes a more civilised stance.
If HMRC want people to pay their ‘fair share’ of tax, they should make the system more understandable and accessible first.
Allison Plager
