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The Chancellor has announced a series of measures to further clamp down on the hidden economy and recover an additional £1.5 billion in unpaid taxes.
As well as confirming new penalties set out in the pre-Budget report (PBR) for individuals who fail to pay taxes on offshore assets, with penalties of up to 200% for deliberate and concealed evasion, Alistair Darling unveiled plans to equally apply to services the reverse charge that combats VAT carousel fraud in goods.
The new provision will be used to introduce a reverse charge for emissions allowances. It will take effect from 1 November 2010, when it will replace the interim zero-rate introduced in July 2009.
The legislation will also allow HMRC to introduce additional reporting requirements for services covered by the reverse charge, although there are no plans to apply this to emissions allowances.
In this afternoon’s Budget, Mr Darling also reported on the work of the Hidden Economy Advisory Group, set up at last year’s PBR. In its initial findings, the body has identified that there is currently no clear route for those with undeclared tax to establish their position and disclose their liabilities.
The group has also highlighted key areas for further work and detailed analysis:
- To build on the success of HMRC’s current and past disclosure opportunities in offering mechanisms for leaving the hidden economy.
- To consider how the Revenue can better link access to work opportunities to operating in the formal economy.
- To educate people as to the unacceptability of evading tax and the dangers to working informally.
Measures are to be launched to strengthen and enhance the disclosure of tax avoidance schemes regime. The package will include enhanced penalties for failure to disclose a scheme, a requirement for promoters to provide lists of clients to whom they have issued scheme reference numbers, and amendments and additions to the descriptions of schemes required to be disclosed. Regulations will be introduced in the summer, and are intended to be effective from the autumn.
Effective from 1 April 2010, measures will prevent companies from claiming excessive UK tax relief for foreign taxes through abuse of the double tax relief rules. This package includes principles-based approaches to protect Exchequer revenues.
Other regulations and changes announced or re-announced in the Budget to combat tax dodging cover group mismatch rules, share incentive plans, company share option plans, release of loans to participators, transactions in securities legislation, partnerships and stamp duty land tax, over-hedging and under-hedging, and charities.
'HMRC are clearly considering incentives to encourage those who don’t currently pay the right amount of tax to "join the club"'. These could even include the Revenue agreeing not to collect the full amount it is owed,' said Chris Maddock, head of private clients at Vantis Group
'HMRC needs to act quickly to clarify their proposals in this area so that taxpayers can begin to put their tax affairs in order with some degree of certainty.'
