Nothing brings back those genuine childhood feelings of “That’s not fair!” injustice as thinking about our tax system. Most of us understand the need to pay our fair share – and want to pay only our fair share. None of us want to see anyone getting away with not paying their legitimate taxes. But when the system, processes and actions imposed on the Tax Office to administer the regulations seem unjust, it’s difficult to have any faith at all.
HMRC’s ‘Affluent Unit’
No, not top tier HMRC staff! But a unit established in 2011 with the sole purpose of looking into the financials of those taxpayers who are outwith the existing ‘High Net Worth Unit’. The “mass affluent” are defined as people who earn £150,000 per year or who are worth between £1 and £20 million.
In the last year the 100 extra investigators employed in this unit have proven themselves more than worth their salary. Their work secured £137.2 million in unpaid tax from the “mass affluent”. Last year they brought in £85.7 million, so that’s a massive rise of 60%.
Well, if they should be paying what they owe, shouldn’t they? And it’s a bit hard for most of us to feel much sympathy for high earners at the best of times. But when you look a little further into the details we see that it all comes back to that question about fairness.
Why the “mass affluent”?
Let’s just consider one other statistic as the start of the answer to that question. Remembering that a rise of 60% in revenue within the “mass affluent” group raised £137.2 million in one year, HMRC got back £268 million from the ultra wealthy category – this was a rise in only 20% on the previous year. Yep, nearly double for less than half the percentage. In fact it is reported that the rate of recovering unpaid tax from middle class professionals is moving 3 times faster than that from the super rich.
The amounts available from the super wealthy are obviously much more, so why are HMRC targeting the merely ‘affluent’?
- Many may have simply made a mistake in their tax return.
- New software that gathers information in ‘real time’ makes it easy for HMRC to investigate someone in this tax band.
- Some have the financial rug pulled from under them when an investment scheme they are involved with, usually on advice from a financial advisor, is suddenly classed as unfair by HMRC.
- Information easily obtainable from many sources including; councils, banks and social media.
Pinsent Masons’ Head of Litigation and Compliance, James Bullock adds three further interesting points.
- As the amount of money is usually around £10,000 – £15,000 and the legal fees would probably amount to the same, the “mass affluent” usually settle their bill rather than go to a tribunal. Regardless of whether they have deliberately tried to avoid paying tax or just made a mistake. Whereas the super rich can afford to argue with HMRC in a tribunal setting.
- Middle class professionals are “a captive audience for HMRC”. By this he means that work and family ties hold our ‘mass affluent’ here in Britain. The ultra wealthy have more mobility and can just leave the country if they find themselves at odds with the Tax Office.
- The complexities of our tax system may damage our businesses. Mr. Bullock explains, “Tax enquiries are very time consuming and damaging to business in terms of the cost of extra professional advice and the time taken out of doing what they are good at. “
The Sunday Times recently published leaked information concerning those individuals who invested in the Inside Track Productions Scheme in 2002-2003. This was a film investment scheme which was behind the Oscar nominated film ‘Vera Drake’. HMRC are currently attempting to prove that this scheme’s real intention was to allow investors to avoid paying tax.
If they succeed then its 141 high profile and high earning investors will have a very large backdated tax bill to pay. It involves considerable individual amounts. Robbie Williams put in the largest amount of £2 million, which could save him that amount in tax because he could offset other income against any losses he incurred.
Likewise Anne Robinson and Jeremy Paxman for £50,000 each, Ant and Dec for £100,000 each, the Beckhams for £1 million. The total amount of tax lost due to investment in this scheme is reported to be £68 million. Almost half of the avoided tax reclaimed from middle class professionals from just one of many such schemes.
Pause for thought. Is this really how we want our doctors, lawyers, dentists, business owners treated? Should HMRC be targeting any particular group of people just because it’s the easier option? There will always be scammers who try to get away with whatever they can and we’d all support HMRC’s pursuit of that category of citizen. What if there was simply a genuine mistake on a form that you wanted to explain and rectify but, because you couldn’t afford to, you end up paying the amount and probably a fine just so as not to lose any more money in the tribunal process.
Are we all OK with that? Would we feel more comfortable with HMRC investigating more of those who will produce the highest return – those sports star, celebrities and business people who can afford to hide, move and continue to avoid paying their fair share?
Tony Shanks