Despite the disincentives, tighter legislation and the government having more information inflows than ever before, the UK’s tax gap still sits at about £37bn.
The UK is one of the only countries in the world to regularly publish a tax gap figure, which makes direct international comparison difficult. However, experts generally agree that the complexity of our global tax system creates inefficiencies in the collection of taxes and opportunities for abuse.
Tax avoidance has come under the media spotlight in a major way. Large corporations have been boycotted, and there has been regular criticism of HMRC by the Public Accounts Committee, including arguments over immoral behaviour.
Tax is imposed by law, but we also want to encourage behaviour that means individuals and corporates are responsible taxpayers and see it as a part of their civic responsibilities. If there is a shift in the way that taxes are perceived, from one of real-life cost to real-life benefit, then the desire to avoid tax may be reduced.
Businesses want to restore and retain the public’s trust. Larger corporations are already required to publish tax strategies that set out statements about the company’s risk appetite, attitude to tax planning, use of tax havens, approach to risk and approach to working with HMRC. It might be that one day we will all be expected to make similar statements.
Scandals in the news
With recent tax scandals highlighted in the media, even where businesses or individuals might have operated within the law, the perception is that they have behaved immorally. I think the global transparency measures will mean there will be greater scrutiny of business accounts, and the public will expect businesses to pay tax in the country in which the revenues are earned.
Simplification of the tax system could help businesses by removing the ambiguity in tax laws and creating fewer opportunities to exploit loopholes. As further discoveries are made, for example the Paradise Papers, the perception of avoidance schemes conflates the meaning of evasion and avoidance, and creates the view that avoidance is just another form of evasion.
HMRC’s wins case against ‘Liberty’ schemers
Let us consider HMRC’s recent court win against the users and promoters of the ‘Liberty’ scheme.
It is worth pointing out that the Upper Tribunal judges’ decision was to uphold the First-Tier Tribunal’s original decision that the scheme or arrangements were “artificial and uncommercial”. This meant that artificial tax losses were created for 1,600, predominantly UK, taxpaying scheme users, involving a Jersey partnership and Cayman Islands company.
News of this was released towards the end of October 2017, but HMRC and the scheme’s users had decided to formally proceed much earlier, with a hearing in around 2014. This demonstrates the length of time people are waiting to have their day in court. Also, HMRC investigators would have picked this scheme up for investigation many years before, where they would have had the hard task of identifying the facts before considering the tax consequences.
