In the Budget on March 11 the Chancellor announced, alongside more help for businesses hit by Coronavirus, that HMRC will receive extra funding for its compliance activities. This extra funding is forecasted to increase the amount collected through investigations by £4.4bn over the next five years. So what does this means for taxpayers?
This extra funding for investment in “compliance officers and new technology” means accountants and their clients can expect HMRC to be even more aggressive in its investigations over the next few years.
Part of this extra funding is likely to be used for the creation of new taskforces and for further expansion of current taskforces. The use of taskforces that focus on particular taxpayer groups has become a key part of HMRC’s strategy to crackdown on tax evasion.
As accountants will already know, taskforces are drawn from HMRC’s most experienced staff who are specialists within their particular industry. This pooled expertise and focus on specific industries means that these teams are better able to identify cases for investigation.
Taskforces often target clients by making unannounced visits during which they will push management teams for a full interview before they can seek professional advice. HMRC could also issue a notice of inspection at short notice before turning up.
HMRC has created more than 360 taskforces since 2011 (as of July 2019), which collected more than £500m in extra revenue in 2018/19, up from £464m in 2017/18.
An example of a successful taskforce that has hit the headlines recently is HMRC’s ‘football compliance project’. This taskforce is investigating the tax affairs of 330 players, 55 clubs and 80 agents and has recouped £65m in tax from clubs, £18m from players and £7m from agents since it was created in 2017.
Another high profile taskforce is the Panama Papers Taskforce. This was created following the Panama Papers leak in 2016 which saw over 11m documents related to taxpayers’ offshore interests made public. In its latest annual report, HMRC confirmed that investigations launched by this taskforce are forecast to produce more than £190m in compliance yield
HMRC has also launched taskforces focused on a wide range of more everyday industries such as street markets in London, the alcohol industry in Scotland, tax firms in Yorkshire, buy-to-let landlords in the South East and unregulated dog breeders.
The use of taskforces comes as HMRC pivots strategically towards preventative methods to tackle tax evasion rather than reacting after it takes place. Other preventative measures that accountants will already be aware of include the use of “nudge” letters to encourage taxpayers to provide details to HMRC which can then be cross-referenced with tax returns.
Tax investigations can be costly and stressful for all those involved. Clients can protect themselves against the cost of most tax investigations by subscribing to PfP’s Tax Investigation Service.