Could HMRC’s tough stance on tax evasion backfire?

HMRC’s policy of targeting specific groups would appear to be working, accountants may be interested to learn. In the year ending March 2010, the Revenue raked in £16.5 billion from its tax avoidance and evasion investigations. In 2004-05, the income from compliance investigations was a mere 6.9 billion and in 2008-09 the figure was 12.1 billion.

Roy Maugham from UHY Hacker Young pointed out that although HMRC’s new aggressive stance is raking in money for the Treasury, that same aggression is deterring companies from starting up a business in the UK. The government seems to believe it has found a secret formula to boost the Treasury’s coffers. It thinks that by investing more money in compliance work, extra income will continue to flood in.

However, a lot of British companies have already moved to Switzerland, Malta and Ireland to escape the Revenue’s aggressive attitude to tax collecting. The government could find this more costly in the long run as it will lose tax revenues from those companies.

A lot of small firms feel intimidated into paying HMRC. In other instances, they are simply unable to afford to challenge the Revenue when the case gets to litigation.

Enquiries into corporation tax netted an additional 4.6 billion in 2009-10, whist VAT investigations brought in another £6.2 billion. HMRC is currently running a specific campaign targeting VAT fraud, so we can expect to see that figure increase.

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