HMRC’s investigations into tax evasion have resulted in a plumber from the West Midlands receiving a 12-month jail sentence for failing to pay a total of £91,000 in national insurance and income tax.

Investigators caught up with 53-year-old David Williams last September and discovered cash totalling thousands of pounds stashed in his home.

Adrian Farley, the Revenue’s assistant director of criminal investigation, reiterated the government’s stance on tax evasion saying it deprives the UK of essential resources and the department will investigate if it suspects somebody is not contributing their fair share.

When sentencing him, His Honour Judge Challinor told the defendant that his crime was based on greed and people who were tempted to avoid paying taxes needed to be deterred. The Revenue is also instigating confiscation proceedings to ensure Williams and his family do not benefit from his dishonesty.

A further nine plumbers have also been arrested and are currently under investigation after HMRC targeted the trade with a special disclosure opportunity last year. These opportunities, which target groups the Revenue classes as ‘high risk’, give preferential terms to people who want to get their tax affairs in order. However, anyone who does not take up the offer will be heavily penalised and could face criminal prosecution if HMRC inspectors have to hunt them down.

So far the Revenue has raised more than £500 million from campaigns targeting people like medics and tutors and coaches and businesses that have been evading VAT. Follow-up activity has raised a further £110 million.

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A Treasury sub-committee has called on HMRC to be more accountable and transparent when it is settling large tax disputes and devise a more accurate way of calculating the UK tax gap.

There has been widespread criticism from contractor accountants about the way HMRC settles its tax disputes with large organisations. The Revenue has been accused of making “sweetheart” deals with companies like Goldman Sachs and Vodafone.

MP George Mudie, the chairman of the sub-committee, said it was encouraging to note that the Revenue is implementing changes in its tax dispute processes but there are still serious questions about accountability and transparency at board and ministerial level.

He went on to say that HMRC is making inroads into ensuring people pay the taxes they should, but there is still a lot of work to do before we see a significant reduction in the tax gap.

The NAO recently published a report saying that HMRC just missed its target to increase the amount of tax it collected from initiatives to clamp down on tax evasion.

The report from the Treasury sub-committee says that the tax gap calculation is flawed and the Revenue should focus on making sure people pay the correct amount of tax rather than maximising revenue regardless of the cost.

Other recommendations included in the report were for a general tax disclosure facility and prosecution for people who fail to disclose tax through offshore campaigns.

The UK tax gap has been estimated at around £120 billion, of which £25 billion is late paid tax. HMRC suggests that tax evasion accounts for 7% of that, but based on figures from the World Bank, it could be as high as 13%.

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HMRC recently arrested around 16 people, including some City bankers, suspected of participating in a tax evasion.

The fraud exploited a loophole in film finance schemes but the Revenue declined to divulge the details behind it.

Among those arrested were four employees from the investment banking arm of the Royal Bank of Scotland and staff from Marex Spectron, a commodities broker, and US bank Jefferies. However, the arrests were in connection with the activities of the individuals and do not reflect on their employers.

John Cassidy, a PKF tax investigations partner, said they thought the arrested men might have been over-inflating the film finance relief. For HMRC to take the trouble to raid the men’s homes and order the arrests suggests that this was a deliberate fraud. Normally the Revenue carries out very few raids as they both time consuming and labour intensive exercises. It normally finds better ways of dealing with loopholes.

HMRC has been cracking down on high earners recently to make sure they pay their fair share of taxes to reduce the fiscal deficit.

Last November, a first tier tribunal decided that two film partnerships had not been set up as commercial operations and therefore they were not allowed to claim sideways loss relief. This suggested that a popular tax avoidance strategy was being closed down.

Sir Alex Ferguson, the manager of Manchester United, is one of several high profile figures who have used film partnerships as a means of offsetting tax losses.

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Contractor accountants may have been following with interest the latest high profile tax evasion case held at Southwark Crown Court.

Harry Redknapp, the manager of Tottenham Hotspur, and Milan Mandaric, the ex-chairman of Portsmouth FC, were both found not guilty last week of all the charges laid against them. The trial lasted for two weeks, during which time Redknapp vehemently denied avoiding tax on money in his Monaco bank account.

After the verdict, Mr Redknapp said he was glad the nightmare was over but reckons the case should never have come to court in the first place.

HMRC says it did not regret bringing the case to court, despite the fact that the five-year police investigation cost around £8 million and netted absolutely nothing. However, the general public may feel the whole debacle has been a huge waste of taxpayers’ money.

The prosecution relied heavily on the fact that Redknapp had told a journalist that he received money as a bonus when Portsmouth sold Peter crouch. This information was published in the News of the World, a paper that is currently paying out huge sums in compensation to victims of phone hacking.

Redknapp admitted in court that he had given the information to the journalist but that it was simply to get him of his back. Under cross-examination, Redknapp said he was under no obligation to tell the reporter the truth, but he did have to tell the truth to the police.

Mr Redknapp co-operated fully with police during the inquiry and voluntarily disclosed details of his offshore bank account in Monaco.

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There’s been a wonderful example this week of exactly the kind of problem we contractors are faced with when trying to get our point across. A government agency, SLC– which is basically a private firm owned by HMG – was having some operational issues, so they brought in an expert, a Mr Lester, to sort them out. He was proving to be quite good at it, so they offered him a two year deal. Which he accepted. So far, so good.

The original work was done as a bog-standard interim management role: the guy was not employed, he did the job and charged a fee. When the two year deal turned up, he said fine, can you continue to pay me gross to my existing Limited Company and I’ll sort out the rest.

And then it all starts to go a bit wrong.

Someone – doubtless someone with just enough knowledge to be dangerous – asks exactly why Mr Lester has been allowed to avoid paying his taxes. Shock horror! Let’s do a TV programme on it!! This is outrageous!!! Lets’ have a witch hunt and track everyone else doing the same thing!!!!

Yes well, hang on a minute. Firstly we have zero evidence what taxes Mr Lester is paying, since he’s not obliged to disclose that information. There’s no evidence he isn’t paying quite a lot in tax; certainly, like many well paid contractors, a lot more than the average worker. He may even (say it quietly) have declared his earnings under IR35. Who knows?

His is a perfectly straightforward and entirely legal way to operate his company, to share his income with his other half and generally behave like the other 1.5 million freelance workers in the country. Like that chap who earns a million or so a year from public speaking. You know the one, David Milliband, sometime brother and elected, serving MP. Or indeed, the unloved Mr Brown who does the same with his outside earnings, although in his case they all go to charity.

It’s also interesting to note that various senior people had to sign off the arrangement whereby Mr Lester was paid gross. One might think that they had a handle on such things, but I could be wrong. And it’s all a bit moot now anyway, since Mr Lester has done the honourable – if arguably unnecessary – thing and gone on the payroll like the rest of the wage slaves.

But we can glean some interesting insights from this débacle.

Firstly, there are clearly a lot of senior people, including some who are actually in charge of such things, who don’t have a Scooby about how contractors work and how they are paid. Basically they do not trust a usually intelligent and highly skilled worker to arrange his affairs so that all taxes due are paid in full and on time.

Secondly we have once again seen the conflation of avoidance and evasion. Yes you can be against avoidance, but it’s not illegal; quite the opposite, in fact, it has long been sanctioned as an acceptable practice. You want evasion? Fine, so make whatever it is illegal and you’ve got it, but being tax efficient is avoidance, not evasion, and perfectly fine.

And finally, someone can’t actually count. Mr Lester will finish his contract and leave. No pension, no golden handshakes, no extended period on full pay while he finds a new job. That’s quite a chunk of public money saved over a full time employee. In fact, if you do the sums based on the figures that have been published, this tax saving exercise of moving Mr Lester on to the payroll will actually cost several tens of thousands more that if they’d simply left things alone.

But hey, nobody ever accused either HMG or the fourth estate of being financially competent, did they.

And what grates is the underlying point that people who should know better simply fail to recognise that there are freelance contractors among us. People who keep the wheels turning, who make few demands on the state, who represent an efficient and cost-effective workforce. People who are a long way removed from those who create companies for no other reason than to avoid paying taxes on earnings that they wouldn’t have got at all were they not already on the public payroll. You know who you are.

So bring on the witch hunt. But please, break the habits of a lifetime and point it at the right target…

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UK Uncut has started formal legal proceedings in a bid to reverse HMRC’s decision to let Goldman Sachs, the investment bank, off paying up to £20 million interest on its tax bill.

A few days before Christmas, the action group logged an application in the administrative court calling for a judicial review and claiming that the Revenue has tried to avoid giving details of the deal to the Public Accounts Committee.

The Revenue has admitted that a mistake was made in the agreement. According to a National Audit Office estimate, the Exchequer lost between £5 million and £8 million because of the error. However, an HMRC whistleblower said the loss was nearer to £20 million.

UK Uncut Legal Action released a statement saying a judicial review to reverse the decision was in the public interest and Goldman Sachs should be forced to reimburse UK taxpayers with the £20 million.

Law firm Leigh Day & Co is supporting UK Uncut and will be representing them on a no win no fee basis. Richard Stein explained that the lawyers wrote to the Revenue last October asking them to reverse the decision and reclaim the money from Goldman Sachs, which is one of the richest banks in the world. However, HMRC chose not to respond. The legal firm followed up their request in November and the Revenue replied saying it needed more time.

HMRC, and Dave Hartnett in particular, came under a lot of criticism last year for treating large companies more favourably than other taxpayers. If individual taxpayers are penalised for late payment, surely large corporations should receive exactly the same treatment.

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In addition to HMRC’s relentless campaigns to tackle tax evasion, the Revenue has also been targeting sectors that exploit interns.

The latest campaign targets designer labels and fashion houses suspected of not complying with National Minimum Wage legislation.

Fashion houses that took part in September’s London Fashion Week will be receiving a letter from HMRC reminding them that they need to adhere to regulations and pay their interns at least National Minimum Wage.

The Assistant Director for the National Minimum Wage, Michelle Wyer, said fashion houses are being given plenty of warning to put things right if they have not been sticking to the rules. Paying less than the NMW is not acceptable and firms that have been doing so should put things right now before Revenue investigators come knocking on their door.

Compliance visits will commence early next year and companies found to be breaching NMW regulations will be fined 50% of the underpayment and face possible prosecution.

There is evidence to suggest that interns are unlikely to come forward and complain that they receive less than the national minimum wage. HMRC is therefore targeting the trade sectors that are known to use interns in a bid to ensure compliance.

Ben Lyons from InternAware explained that the current system clearly breaches NMW legislation and many interns are being exploited. This exploitation is particularly rife in the fashion industry where most of the staff in some firms are unpaid interns.

However, John Miln, the UK Fashion and Textile Association’s acting chief executive, believes HMRC is picking on the fashion industry unfairly. He pointed out that the Revenue should also be addressing the problems of unpaid internships in media and political circles.

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Tax evasion is a global problem and a recent report from the Tax Justice Network shows just how bad the problem is.

The Tax Justice Network analysed tax evasion in 145 countries around the world and discovered that it cost the global economy in excess of $3.1 trillion. That equates to 4.9% of global GDP!

The USA heads the tax evasion league table at £337 billion, followed by Brazil, Italy, Russia and Germany. The UK comes in at No. 9. The data suggests that the exchequer loses £69.9 billion to tax evasion each year – that’s almost 80% of the entire NHS budget.

The report, compiled by forensic accountant Richard Murphy, also showed that 87% of Europe’s total budget for healthcare is lost to tax evasion. In Africa, the percentage is 98% and South America loses a whopping 139% of its healthcare budget to tax evasion.

Despite a G20 pledge 2 years ago, little has been done to stop companies avoiding tax by transferring their funds to secret tax havens. The Cayman Islands, Hong Kong, Luxembourg, Switzerland and the US have all been considered safe places to stash secret funds.

The UK government is keen to stamp out that practice and it hopes the recently signed Anglo-Swiss deal will capture the assets of UK residents who have secreted their money in Swiss banks. Other countries are now trying to negotiate similar deals with Switzerland. HMRC has also set up the Liechtenstein Disclosure Facility so that taxpayers can declare previously unpaid taxes without risking criminal prosecution.

However, tax evasion is going to remain a problem until all countries around the world agree to tackle it. At a time of global economic crisis, $3.1 trillion is an awful lot of money to be losing to tax evaders!

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HMRC is rubbing its hands together in glee after increasing the amount it collects from its compliance work.

In the last 12 months, HMRC’s income from investigations into tax avoidance and tax evasion rose to £16.5 billion. That’s a 37% increase on the last financial year.

Accountancy firm UHY Hacker Young said the increase was a result of the taxman adopting a more aggressive approach. Enquiries into corporation tax provided the Revenue with £4.6 billion, whilst VAT inspectors brought in £6.2 billion – up 92% on the previous year.

According to UHY Hacker Young, the government believes that if it keeps on investing in tax inspectors, the extra money will continue to flood in. In reality, a lot of businesses settle up because they feel intimidated by HMRC.

Roy Maugham said the Revenue’s aggressive stance is going some way towards helping reduce the budget deficit. However, the downside of this is that the Exchequer will find it harder to work out the total cost of compliance and the UK will become a less attractive place to do business.

A lot of UK companies have already moved their headquarters overseas to countries like Ireland, Malta and Switzerland, he continued. They have done this to escape the high business taxes in the UK and HMRC’s aggressive attitude to tax collection.

The Treasury could lose out in the long run as the lost revenues from companies relocating overseas outweigh the revenue brought in from increased compliance activity, Maugham concluded.

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As if the Chancellor hasn’t got enough on his mind trying to keep the UK from dropping back into recession, lawyers from the European Commission are unhappy about the recent Anglo-Swiss tax agreement.

According to the lawyers, the deal breaches European Union laws that take a tougher stance on tax evasion. George Osborne has been told to renegotiate the recently signed deal or be sued by the EU.

The new agreement protects the secrecy of UK residents who have Swiss bank accounts in return for a withholding tax and a large percentage of their capital.  The German government has also brokered a similar deal for its citizens and has now entered into new talks with Switzerland.

However, the EU claims the deal goes against the European Union Savings Directive. The EU’s tax commissioner, Algirdas Semeta, explained that if the problem cannot be easily resolved, the EU will have to pursue the matter through the courts.

Meanwhile, the Institute of Directors has said the UK government is not doing enough to attract overseas investors. The country’s tax system needs to be more competitive and the coalition should introduce incentives to encourage foreign businesses to invest in the UK and help fuel job growth.

The IoD’s director-general, Simon Walker, said the UK should be seen as the country of choice for international investors, and somewhere with a tax system that favours enterprise and hard work.

The tax system we have at present puts us in the middle of the 34 OECD nations, not in the front, he added.

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Contractors who own holiday homes abroad need to be aware that HMRC has set up a new team of tax investigators to look into possible tax avoidance. The Treasury hopes to net at least £500 million from this new initiative by 2014-15.

The “affluent unit” team will consist of 200 investigators and specialists will use software to search through publicly available information in the hope of identifying people who own overseas property and who should have been paying income tax on rental income, or if a property has been sold – capital gains tax.

The investigators will make use of “risk assessment” tools in order to highlight individuals who do not seem to be declaring the right income and gains, as well as those who do not appear to have been able to afford to buy the property legitimately.

Owners of holiday homes will also be asked how they funded the purchase and whether they are declaring it as a source of income.

An HMRC spokesperson said the affluent unit would be targeting individuals with assets of at least £2.5 million, as well as those who should being paying the top rate of income tax. The unit will be modelled on the High Net Worth Unit, which brought in £247 million in its first two years.

This focus on overseas homes is another part of HMRC’s wider crackdown on tax evasion. David Gauke, the exchequer secretary to the Treasury, explained that HMRC has demonstrated increasing success in tackling tax evasion at home and abroad. The government is giving out a clear message that tax cheats no longer have anywhere to hide.

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Accountants for contractors may be interested to learn that HMRC has launched a new taskforce to tackle tax evasion in the scrap metal industry.

The taskforce will target scrap metal dealers north of the border. The Revenue believes that this is an industry where the risk of tax evasion is high.

Last week, HMRC announced that it had set up five new tax evasion taskforces. In addition to targeting Scottish scrap metal dealers, self-employed construction traders in North Wales and the North West of England will come under the spotlight.

Another taskforce will investigate taxpayers in the South East who fail to submit Corporation Tax, VAT, PAYE and self-assessment returns. A further taskforce will investigate Scottish fast food outlets suspected of falsifying records.

Finally, landlords in North Wales and the North West, who have at least three properties and are suspected of evading taxes, could find a taskforce inspector knocking at their door.

The Exchequer Secretary to the Treasury, David Gauke, said the government does not tolerate lawbreakers. HMRC can and will track down tax evaders, no matter who they are. They will receive heavy fines and criminal prosecution could be a possibility.

In last year’s spending review, the government allocated £917 million to combat tax crime. It hopes this funding will raise an additional £7 billion per year by 2014-15.

HMRC intends to have 12 taskforces in place by the end of this financial year and says more will follow in 2012-13.

The Revenue has also set up a Tax Evasion Hotline where members of the public can phone and report anyone suspected of tax evasion.

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