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The seven deadly weapons of HMRC

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Treasury minister David Gauke announced that, due to HMRC interventions, an additional £23.9bn of tax has been collected over the last 12 months. HMRC has ‘tooled up’ in recent years to target what it regards as unacceptable tax behaviour by particular businesses and individuals. This is in addition to the existing tax assessment and appeal process via the courts, including debt collection techniques.

We take a look at powerful tools in HMRC’s armoury and HMRC’s ‘seven deadly weapons’:

  1. Disclosure of tax avoidance schemes (DOTAS): This typically covers avoidance arrangements that are mass-marketed, based on loopholes and not within the spirit of tax law. The scheme user must disclose a DOTAS reference number on their tax return (or face a £1m fine). HMRC gets an early warning and Parliament can act quickly to close the loophole. This has proved successful in recovering billions of pounds in tax revenue. 
  2. General anti-abuse rule (GAAR): Introduced in 2013 to ‘sweep up’ tax planning on an individual taxpayer basis that HMRC feels is at the margin. HMRC issued a guidance note with more than 130 examples of where the GAAR may apply. Arguments are settled in front of a GAAR panel, which may decide in favour of HMRC or the taxpayer. It is criticised for being too heavy-handed and an extra burden on an already complicated tax code.
  3. Naming and shaming: Personal details and photographs of ‘deliberate tax defaulters’ are published on the HMRC website. This is aimed at those conducting deliberate fraud, where penalties are typically around 75%–100% of the tax evaded and will be into tens of thousands of pounds. Current targets have been importing and exporting industries, evasion of tobacco and alcohol duties, the restaurant sector and construction industry. The policy is criticised as not having any major effect on changing criminal behaviour.
  4. Follower notices: A new law currently passing through Parliament, aimed to prevent a taxpayer withholding tax where HMRC challenges a particular transaction through the lengthy court appeals system. It will prevent a taxpayer using the money in the meantime by making them pay the disputed tax upfront, which is refunded only if they win. This is likely to prove to be a significant deterrent to marketed tax avoidance schemes.
  5. Bank account accessing: A controversial new proposal for HMRC to take tax debts of more than £1,000 directly from the bank accounts of late payers. It is criticised because HMRC has made mistakes in the past in calculating what people owe. 
  6. Exchange of information agreements: These are arrangements with other countries to share information on bank accounts and investments held by UK residents overseas. This information is not otherwise available to HMRC, but the agreements mainly allow HMRC to gather vast amounts of data of foreign bank accounts held by UK residents in a growing number of foreign countries signing up to this reciprocal scheme.
  7. Good fortune! The jilted lover, dismissed employee and nosey neighbour are all sources of additional ‘backdoor’ information for HMRC. HMRC received 72,000 such telephone calls last year.