Andrew Addie: Taxing questions being asked of evaders and avoiders Taxing questions being asked of evaders and avoiders

THE UK tax gap, the difference between the amount of tax that should be collected and the actual sum gathered in, is currently estimated at some £35 billion annually.

It is perhaps no wonder that the UK government is determined to be tough on tax avoidance and find ways to stamp out tax evasion. It has declared its intention both to legislate to close tax loopholes and litigate against taxpayers who implement tax avoidance schemes. Its recent announcement that it has created two taskforces to target tax-evading scrap metal dealers and fast food outlets in Scotland is further indication of its intent.

HMRC’s most popular strategy is the tax amnesty, which acts as a means to force non-compliant taxpayers to pay up or face the consequences. But as more professionals are targeted, it is debatable whether it is really working. The key principle behind an amnesty is that the taxpayer is given an opportunity to volunteer to pay unpaid taxes at a reduced financial penalty and – in most cases – without the risk of criminal prosecution.

The most recent amnesty was for tutors and coaches, many of whom are self-employed, and for working for a second income. In the past three years, HMRC has launched similar campaigns targeting medical professionals, plumbers and UK taxpayers with offshore bank accounts that they have not disclosed to the tax man. HMRC has already announced that e-traders will be targeted next spring and a second round of tradesmen (will it be builders, joiners, or electricians?) will also be looked at.

So, these are troubling times for anyone who has not paid the full amount of tax they should have, but are the amnesties enough to change behaviour? The yields from the campaigns already undertaken seem to suggest that many taxpayers faced with difficult economic conditions are still taking a chance that HMRC will never catch up with them. The first offshore disclosure facility yielded £400 million and, although this appears to be an impressive amount, HMRC expected to raise £36bn. The second offshore facility raised only £85m. Of course HMRC will focus not just on the amount which they collect at the time but on the follow-up work that they say they will complete. The campaigns generate a significant amount of intelligence.

And as each amnesty opportunity passes, non-compliant taxpayers run a serious risk of paying a penalty of up to 100 per cent and also face possible criminal prosecution, an approach which HMRC typically reserves for serious cases. New Swiss/UK collaboration agreements signal a significant breakthrough for the UK government in its pursuit of undisclosed offshore bank accounts. If UK taxpayers wish to retain their Swiss anonymity, they will be forced to comply with a regime where up to 48 per cent of the income in the offshore account will be withheld and remitted by the bank to HMRC. The accounts will also be subject to a one-off charge of between 19 per cent and 34 per cent of the total balance. Only a full voluntary disclosure will head off these changes.

The problem for HMRC and the government, however, is that the determined tax evader is unlikely to lie down to this new challenge. There has already been speculation that Swiss bankers, in contravention of the new rules, are helping clients move accounts to other countries where there is no agreement in place, Singapore, for example. One glimmer of hope for Swiss bank account holders is that the new agreement may never be implemented. It is looking likely that the EU could challenge the legality of the UK-Swiss tax deal.

Even if the UK government has problems introducing this agreement, it will inevitably continue to take a very dim view of taxpayers who evade tax by hiding the money in offshore accounts. It will seek to tighten the rules and taxpayers who deliberately move their accounts to side-step the new regulations will surely face severe penalties when HMRC eventually catches up with them.

Whether you see the taxman’s actions as anti-entrepreneurial or morally right, or both, he has a job to do and in these difficult economic times, HMRC is as capable as any business of being innovative and tough. It is also worth reflecting on the fact that HMRC also has the money to do it – the government allocated £917m to tackle tax evasion in last year’s Spending Review.

• Andrew Addie is director of tax for Grant Thornton Scotland.