Avoiding the issue
By Justine Riccomini, Head of Taxation (Scottish Taxes, Employment and ICAS Tax Community)
9 December 2020
Justine Riccomini explains how HMRC is working with the Advertising Standards Agency and has launched a major educational campaign to tackle tax avoidance promoters.
HMRC Teams up with the Advertising Standards Agency
An HMRC Corporate Report published on 26 November 2020 explains the current government thinking on UK tax avoidance, and in particular, so-called “Marketed” tax avoidance. The headline helpfully explains that “Marketed tax avoidance schemes are contrived schemes that are sold to one or more individuals and employers for a fee, with the aim of reducing their tax liabilities”.
The Advertising Standards Agency (ASA) is now working with HMRC and they have issued a jointly branded enforcement notice which aims to tackle the marketing of tax avoidance schemes (The ASA website wording describes them as “Tax Arrangement” schemes). HMRC’s report on how tax avoidance schemes have changed over the 6 years ending in 2018-19 also makes very interesting reading.
How widespread is tax avoidance?
Tax ‘avoidance’ isn’t actually as widespread as most might think, and in fact, much more public funding revenue is lost to error, criminal attack and evasion. HMRC states in its corporate report that 95.3% of all tax deemed to be legally due in the UK was paid in 2018-19 – amounting to £627.9bn. Of that figure, £34.1bn represented additional tax yield brought about by HMRC’s compliance activity, and yet despite this, HMRC estimates that £1.7bn was still lost due to tax avoidance mechanisms.
The tax gap
Approximately 50% of the £1.7bn tax gap (£0.9 billion) is thought to be lost Corporation Tax, and a further £0.6 bn is projected as being down to marketed avoidance schemes (which target mostly lower-paid individual UK-based taxpayers) comprising losses of Income Tax, National Insurance contributions and CGT in the main. The final £0.2bn relates to “Other”, which encompasses miscellaneous direct taxes and VAT.
In 2018-19, marketed avoidance schemes were most prevalent in the age 41-60 group, and 87% of the participants were shown to be earning £25,000 or less per annum, and they had been involved in one or more schemes for three years on average. Contrary to popular opinion, only 2% of those earning over £100,000 pa. were found to have been involved in tax avoidance schemes in 2018-19. HMRC is aware that promoters of avoidance schemes actively targeted nurses and other NHS workers in the early part of 2020.
Why tax goes unpaid
HMRC published this useful table in the corporate report, showing why tax goes unpaid:
The reason tax goes unpaid | Amount of tax revenue lost |
|---|---|
Failure to take reasonable care | £5.5 billion |
Legal interpretation | £4.9 billion |
Evasion | £4.6 billion |
Criminal attacks | £4.5 billion |
Non-payment | £4.1 billion |
Error | £3.1 billion |
Hidden economy | £2.6 billion |
Avoidance | £1.7 billion |
HMRC has confirmed that the figures quoted in its corporate report are still subject to final revision because Loan Charge taxpayers had until 30 September 2020 to file their 2018 to 2019 Self-Assessment tax returns.
Education, education, education
HMRC also launched an educational campaign at the end of November, and aims to connect with self-employed or agency-based contractors to help them understand:
- how to spot a tax avoidance scheme, including those claiming to increase take-home pay and reduce their tax payable;
- how to understand the risks involved in taking up such schemes; and
- how to resist the temptation to become involved.
HMRC has approached a number of well-known sector bodies, including those representing contractors and self-employed individuals who might be targeted, as well as those representing the sectors that have been identified as the most at risk of being targeted by promoters.
HMRC is also looking to use sector-specific publications for industries including oil and gas, medical and IT to enable it to reach those audiences and is moving to work with regional media/press outlets in the UK regions where its research shows higher target audience clusters live or work.
Let ICAS know your views
If you know of a suitable publication which you consider might benefit from an article by HMRC on tax avoidance, or if you wish to contribute to the debate on tax avoidance, why not email the ICAS Tax Team on tax@icas.com.
