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HMRC’s latest annual report and accounts shows receipts from investigations hit £13bn in 2018-19, up 27% from £10.3bn in 2017-18. UHY Hacker Young believes this increase has been partly driven by payments HMRC has received ahead of the introduction of the loan charge in April 2019. Any individual who had used avoidance schemes to reduce their income tax bills had to pay any tax owed to HMRC an April deadline or face extra charges.
It is estimated that 50,000 people who used these loan-based avoidance schemes had to pay back tax on up to 20 years of income in a single financial year.
Partner Clive Gawthorpe said: ‘HMRC has managed to collect a bumper yield from investigations into individuals but it comes at a cost. Its approach to the loan charge was heavily criticised for being draconian but it pushed on with its schedule regardless. A bigger cash hoard was the net result.’
The high level of cash collected could also reflect the results of HMRC’s offshore tax campaign last year. This required individuals to declare any overseas income or gains by September 2018, and pay any liabilities owed, or face penalties of up to 200% of the amount owed.
UHY Hacker Young adds that HMRC has also become more successful at identifying cases for investigation that are likely to result in large amounts of extra tax being collected. HMRC now has vast amounts of data at its disposal as well as increasingly advanced computer systems which has made building evidence for investigations easier.
However, additional revenue makes up only 38.5% of the £34bn HMRC claims to have collected from investigations. The rest is made up of hypothetical estimates, such as ‘revenue losses prevented’ and ‘future revenue benefit’.
Mr Gawthorpe added: ‘Although HMRC will be pleased that cash collected from investigations has jumped, the majority of that yield is questionable. Overall, almost two-thirds of HMRC’s yield from investigations isn’t actual cash, it’s purely hypothetical and could just be a figure plucked out of thin air. Over the past couple of years, HMRC has used a huge variety of sophisticated measures to help boost cash collected from investigations. Technology is playing an increasingly important part in identifying cases and it integration into the compliance process is set to continue.’
HMRC annual report and accounts 2018-19: tinyurl.com/hmrcac201819
