New measures to reduce tax avoidance could raise up to £6.5 billion for the UK government by 2029. By improving the powers given to HMRC, they’re looking to stop people from exploiting the tax system and reclaim unpaid taxes.
The new approach will place more scrutiny on business owners’ tax reporting – and potentially criminalise tax avoidance in the future.
What is tax avoidance?
Tax avoidance is using legal methods to try and reduce a tax bill as much as possible, often by exploiting loopholes in legislation.
Tax avoidance is different from tax evasion. Tax evasion is illegal and is when you deliberately misrepresent your finances to reduce your tax bill.
Government tightens grip on tax avoidance
In her Spring Statement, the Chancellor Rachel Reeves announced that the government is “Continuing our investment in cutting edge technology, investing in the HMRC’s capacity to crack down on tax avoidance and setting out plans to increase the number of tax fraudsters charged every year by 20 per cent.”
The government plans to do this in three ways, by:
- Making it harder for people to use tax avoidance schemes
- Increasing the likelihood that those who do it will be caught
- Imposing stricter penalties to discourage people from doing it at all
1. Making tax avoidance more challenging
The government plans to tighten the tax loopholes most often exploited, while going after the people behind tax avoidance schemes. Speaking during the Spring Statement, the Chancellor said: “When working people are paying their taxes while still struggling with the cost of living, it cannot be right that others are still evading what they rightly owe in tax.”
Reducing the grey areas in tax legislation is the government’s first step.
The plan is to change the wording of current legislation, making it more precise and harder to twist. Then specifically target tax avoidance schemes to stop them from exploiting any loopholes.
HMRC is set to become stricter with businesses that use highly technical or interpretive approaches to their tax returns. They will also apply more scrutiny to complex tax structures to catch any potential breaches.
HMRC’s overall approach will focus on those who are acting ‘not in the spirit of the law’ and will draw on the underlying intention of the law, rather than the specific wording of legislation.
2. Increased enforcement
In the Autumn Budget, the government announced their plans to recruit 5,000 new HMRC compliance officers and 1,800 debt collectors. This will make it easier to catch and prosecute those intentionally avoiding their tax bill.
And the government could broaden the powers of HMRC to gather information during complex tax investigations. They’ll do this by increasing the use of AI and advanced analytics to help identify potential tax avoidance.
They’ll also be an informant scheme introduced where people can report businesses of tax fraud and get compensation in return. The exact details of how much compensation an informant would receive aren’t clear yet, but could ‘be equal to a proportion of the tax take’.
3. Discouraging tax avoidance
The government is trying to stop tax avoidance schemes by giving HMRC more power to investigate and stop the people running them – plus putting in place harsher penalties for those who knowingly try to avoid paying their full amount of tax.
HMRC uses a tool called a Stop Notice on tax avoidance schemes to stop them from promoting themselves. Once a Stop Notice has been issued, it’s a legal requirement for them to stop promoting their scheme or face severe penalties.
But a trend of schemes closing and reopening under another name (called phoenixing) has meant HMRC sometimes struggle to stop these schemes permanently.
To change this, the government could introduce a ‘Universal Stop Notice’. This would give HMRC increased power to stop the people behind the schemes, rather than the schemes themselves.
This means that anyone involved in a scheme that receives a Universal Stop Notice cannot be involved in the scheme or another similar one, which stops people phoenixing. If they’re found continuing to work in tax avoidance schemes, it would be considered a criminal offence.
Another proposal from the government is Promoter Action Notices. These would be issued to banks, employment agencies, and advertisers telling them to stop supporting businesses that have received a Universal Stop Notice.
More useful articles for small business owners
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- What is HMRC Time to Pay?
- Rules for tax on cryptocurrency
- HMRC Self Assessment penalties
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