The HMRC Business Plan for the year 2010-11 includes two objectives among others:
• "Ensure those seeking to evade tax are subject to robust and effective civil and criminal action".
• "Tackle avoidance risks through policy and legislative design, designing out opportunities for avoidance and continuing to develop principles-based legislation which strengthens defences against innovative avoidance schemes. Where avoidance does occur, we will detect it early and tackle it through effective legislative change and/or well-targeted challenge, litigating where necessary."
While it is clear that tackling non-compliance and eliminating tax evasion remains a high priority, tax avoidance also reduces the Treasury’s income significantly and, in the current economic climate, has also become a target.
Tax avoidance is the legal use of the tax regime to reduce the amount of tax that is payable. By contrast tax evasion is the general term for efforts by individuals, firms, trusts and other entities to evade taxes by illegal means such as declaring less income, profits or gains than actually earned; or overstating deductions. Given that taxpayers are permitted to structure their financial affairs in such a way as to minimise their tax liabilities, they will often take advice from tax professionals as to where the legal limit will fall between the two.
Many of those with undeclared funds who have not taken up opportunities offered by the amnesties will be threatened with investigation as HMRC and other revenue authorities gain access to an ever-increasing volume of data under tax information exchange agreements signed with different countries. We can therefore expect an increase in the number of investigations where tax inspectors suspect that funds have not been declared. What is now apparent is that they will not be limiting their investigations to suspected tax evasion; they will also be examining tax avoidance and challenging the grounds on which taxpayers and their advisers have decided not to declare income or gains.
Where HMRC uncover evidence of wilful evasion, penalties can now be as high as 200% of unpaid tax. Penalties may also be imposed if HMRC successfully challenge avoidance measures. Individuals who may have unpaid tax would therefore be well advised to make a prompt, full and complete disclosure. However, whatever the circumstances – disclosure or reply to an enquiry – the first contact an individual has with HMRC will have a significant influence on their decision as to whether or not to launch a full-scale investigation; taking the advice of experienced professionals can significantly reduce that risk.
