HMRC’s enforcement and compliance business ensures a level playing field for the compliant majority and tackles those who don’t pay. HMRC is using a new ‘promote, prevent, respond’ strategy, making it easier for people to do the right thing, so it can target the minority who try to cheat the system. Progress is being made in tackling tax avoidance and dealing with large business issues, while the varied nature of evasion is reflected in our approach to dealing with it. HMRC is using data to increase its reach and effectiveness, while its approach to tackling debt has options for those who can’t pay, and sanctions for those who don’t.
HMRC’s enforcement and compliance business plays a critical part in administering the UK’s tax system. It ensures a level playing field for the compliant majority of businesses and individuals, by tackling both the small minority who game the system and don’t pay on time and, at the extreme end, the tiny minority of deliberate cheats.
It’s also one of the UK’s largest law enforcement agencies, working with other parts of HMRC, other government departments and other law enforcement agencies to tackle a wide range of risks, from marketed avoidance to organised crime. And it is one of the biggest debt collection agencies in the UK.
It is a big job that requires sizeable resources and a range of professional expertise. Enforcement and compliance’s 26,000 staff include expert analysts, intelligence gatherers, tax professionals and debt collectors. It’s also HMRC’s single biggest line of business (bigger than most Whitehall departments), with a presence in 120 locations in the UK and 28 countries worldwide. Our people played a central role in collecting and protecting a record £23.9bn in additional compliance revenues last year by cracking down on tax evasion, tax avoidance, fraud, error and organised crime. They also collected more than £44bn in debts.
These are impressive figures, and they’ve grown substantially in recent years. But there’s more to reach for, so we’re transforming our approach to compliance by building it into everything we do, to make it even easier to comply.
That new approach – ‘promote, prevent, respond’ – reflects the fact that customer service and compliance are two sides of the same coin. Last month, HMRC’s chief executive, Lin Homer, explained how we’re using digital and data to make this a reality. We are putting customer insight at the heart of what we do and using practical tools, so taxpayers don’t have to give us information that we already have (see Tax Journal, 9 January 2015).
It also involves using that information to prevent people from making mistakes, such as by prompting customers when we know the data they’re providing us with isn’t correct. For those who don’t pay what’s due, smart data helps us to zero in on the key risks and make our enforcement activity even more effective. This is shown by an ongoing campaign where we’re contacting up to 40,000 residential property landlords to tell them that we know they’re landlords and they have to tell us about their rental income – giving them the chance to put their tax affairs in order. We’re also contacting up to 50,000 people who’ve recently started letting – highlighting mistakes they’ve made in returns and how to avoid them, and giving advice on how to get things right the first time.
That all underpins how we’re dealing with the biggest compliance challenges around today, backed by the £1bn reinvested in HMRC since 2010 to enable us to increase our compliance yield.
Tax avoidance is an area where we continue to make significant steps forward. We’ve changed the economics for users entering into marketed avoidance schemes and are getting tougher on those who promote them.
Last year, we issued the first set of accelerated payment notices to tax avoidance scheme users. This is a real game changer which ensures that – like the vast majority of people who pay tax under PAYE – those seeking to avoid tax have to pay upfront while their dispute is settled. This year, we’ll issue around 2,500 notices a month, and we expect to have issued them to 43,000 users by March 2015. We’re urging anyone with genuine difficulty paying to contact us to discuss entering into ‘time to pay’ arrangements.
Our approach to avoidance isn’t just about accelerated payments. We’ve used customer insight to improve how we communicate with people, both to help and encourage them out of avoidance and to convince others not to become avoiders in the first place. These messages are backed up by our 80% success rate in avoidance litigation. Where people claim relief we don’t believe is due and they don’t accept our view, it’s right that we take the matter to the independent tax tribunal for a judge to decide.
We’re also targeting those who create and promote avoidance schemes. New high risk promoter rules mean that when promoters don’t improve their behaviour, we can apply to the tax tribunal to badge them as high risk – flagging to the public the risks of engaging with them.
We also can’t ignore the issues associated with large businesses, given that they contribute around 60% of the UK’s tax receipts. HMRC’s Large Business Directorate man-marks 2,100 of the country’s largest businesses, an approach which has secured £31bn in additional revenues since 2010.
Our first step is to encourage large businesses to discuss tax risks with their HMRC customer relationship manager before they commit to action or during transactions, to help them get things right first time.
Two-thirds of the 800 biggest businesses operating in the UK are currently under enquiry. This doesn’t mean they’re on the make, but it does show just how actively we’re scrutinising how they plan and manage their affairs, including the complexities of the international tax system – a system we’re working hard to reform.
Tax evasion comes in many shapes and forms and how we deal with it reflects that. Our criminal investigations (CI) work has led to 3,000 successful prosecutions over the past four years, dealing with both individuals and businesses that have tried to cheat the system, as well as organised crime. Our specialist investigations team, which tackles complex fraud with civil investigation, yielded more than £4bn last year.
Our use of offshore data – and the way we publicise it – has already resulted in more than 57,000 taxpayers coming clean on their offshore assets and income, with around £1.5bn in previously unpaid taxes coming from money hidden overseas by UK taxpayers, and more in the pipeline. We’re now thinking about how we use this data to promote doing the right thing and prevent people from getting things wrong. We’re encouraging all those with offshore assets to get regular ‘health checks’ from professionals who understand UK taxes to be sure they are meeting their obligations, while our disclosure facilities give people more certainty about what will happen to them if they do tell us about offshore assets.
The ‘hidden economy’ – those small businesses and individuals that don’t disclose all their business activity – offers a different challenge. We know that some people are struggling to make ends meet, but others deliberately operate under our radar to undercut legitimate businesses.
Our new strategy is the ‘eyes’ advertising campaign – where eyes peer out from posters to remind people that HMRC is on the alert, promoting the importance of doing the right thing and the consequences of not doing so. We’re also exploring whether informing customers about the data we have leads to a change of behaviour in those who haven’t got things right in the past. To prevent people from dodging tax, we’ve begun publishing benchmarks on the levels of profit we’d normally expect to see in different types of businesses, to see if this information prompts people into checking that their returns are right.
In terms of how we respond to those who don’t comply, we’re improving how we use data to increase our reach and effectiveness. We now have access to merchant acquirer data – the information which records businesses’ credit and debit card transactions – to help us to uncover hidden operations. This is matched and analysed by data analysts from HMRC’s Risk and Intelligence Service, using our state of the art risking engine, Connect. Our analysts use Connect to identify anomalies and patterns within more than a billion items of data across 30 data sets.
As the hidden economy goes digital, the merchant acquirer data is a vital tool. Initial results show our ability to identify people who have not registered for tax has improved, and the average settlement has increased by 200%, making us more effective and efficient. In a single case, the data pointed towards large scale evasion that resulted in a potential tax settlement of over £4m.
When people or businesses can’t or won’t pay what’s due, it’s our job to collect that debt. This includes everything from small businesses who haven’t paid bills on time to individuals who’ve been overpaid tax credits and need to pay some back.
While 90% of the tax due was paid on time last year, £50bn wasn’t – but we collected the vast majority of this debt within 90 days. Our most effective tool here is to nudge people into paying what they owe. Last year, we sent eight million letters and made six million phone calls to debtors, and collected £37bn this way.
When taxpayers really can’t pay everything they owe straight away, we encourage them to get in touch to discuss ‘time to pay’ agreements, giving them an agreed repayment schedule. Around 700,000 individuals and small businesses are currently in such arrangements, enabling us to collect 90% of the debt, meaning viable businesses don’t fail and are managed through short-term difficulties. For the minority who don’t engage, our Field Force agents go out to collect what’s owed or make arrangements for it to be paid in the future. In a very small number of cases – around 700 last year – we seize goods.
We now also have another tool coming into our armoury: direct recovery of debts. These powers, when legislated, will mean that, for the 17,000 or so cases each year where debtors have repeatedly ignored our attempts to contact them but have the money to pay, we will be able to recover debt directly from their bank, building society or ISA accounts. Responding to feedback from stakeholders, we know how sensitive and careful any application of these powers must be. Last year, we announced a host of safeguards to provide certainty to taxpayers that the powers will only be used when entirely necessary, and that they will be subject to the toughest scrutiny and oversight possible.
While these powers will help us to tackle the minority who refuse to pay what’s due, we want to help people to get things right. Facilities like ‘time to pay’ show that we can help people who are in trouble, while we’re also offering clearer guidance, online help videos and, increasingly, using social media to remind people of their obligations and to signpost the support that we offer.
By making it as easy as possible for people to comply, we can then focus our harder edged responses on the small and shrinking minority who still think they can get away with cheating the system.
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