HMRC is expected to provide a more detailed update on this issue later in September. However, we have been advised of the following in the meantime:
“HMRC has withheld the processing of some employment expense claims due to concerns about whether the relief claimed is due.
HMRC wants to make sure that customers get the tax repayments they are entitled to in as straightforward manner as possible. However, we also need to make sure that where we identify customers who are making errors, we take action to put things right for the customer and prevent similar mistakes from occurring in the future. This is why we are asking some customers to provide further evidence.
We will provide more information to customers impacted by this in due course.”
NAO report on tax evasion in high street and online retail
The NAO reported recently on tax evasion in high street and online retail in the context of HMRC estimating that tax evasion costs around £5 billion a year in lost revenue and is most prevalent among small businesses. The report examined whether HMRC, with other parts of government, is well-placed to tackle tax evasion in high street and online retail and also examined specific risk areas in more depth.
The report concluded that HMRC has had success in raising more tax from online retail by making online marketplaces liable for the VAT on sales by overseas retailers, which generated more than HMRC expected. However, significant weaknesses remain in government systems which tax evaders can easily exploit, most notably around company registrations and the ability of overseas businesses to falsely represent themselves as UK-established.
Tax evasion has been growing among small businesses, and HMRC has so far lacked an effective strategic response. Although there are good examples of localised campaigns targeting some retailers, HMRC missed earlier opportunities to tackle others, potentially allowing their market share to grow.
HMRC’s assessment of risks has also given too little emphasis to widely used methods of evasion such as sales suppression and “phoenixism”, despite identifying that they were large and potentially growing. This means HMRC may not prioritise the most effective compliance interventions. It has also not used some new powers to tackle tax evasion. While these remain untested, they will offer less deterrence.
Tackling tax evasion is not a straightforward task, and with finite resources HMRC must work with the rest of government and other stakeholders to find the most cost-effective way to reduce evasion.
HMRC’s overarching strategy to tackle non-compliance by preventing it from occurring is sensible, but it has not followed through on this principle sufficiently for tax evasion. Real opportunities exist for HMRC to work more systematically across government to reduce evasion.
The report also concluded that HMRC does not measure its overall performance in responding to tax evasion, although the examples highlighted in the report suggest high returns. The likelihood is that tighter controls and more compliance work could raise significant sums and would be cost-effective and improve value for money.
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