So George Osborne confirmed HMRC’s latest strategy to reduce the tax gap In last week’s 2010 Spending Review speech. A £900 million investment to “tackle tax evasion, evasion, fraud and debt” will bring in an additional £7 billion a year revenue by 2014/15. In other words another “Spend to Save” initiative to add to several others dating back to the 1990’s.

In fairness HMRC’s performance in tackling evasion and avoidance has been pretty impressive over the last few years given their staff reductions – 30% since 2004. Another 10,000 (from the current 70,000) are likely to go over the next 4 years.

Putting the additional £7 billion a year into some context HMRC’s total yield in 2008/9 from the efforts to tackle non-compliance was £12 billion. Even taking into account some of the £7 billion will relate to improved debt collection the targets are stretching - to put it mildly.

The Spending Review paper is short on detail on the way forward referring simply to:
• a five-fold increase in criminal prosecutions
• a new dedicated team of investigators to crack down on offshore evasion
• more resources to prevent tobacco and alcohol fraud; an increase in registration checks and a cyber team* to address repayment fraud
• dedicated tax experts to extend coverage of large business tackling high risk areas
• improvements in house debt collection and placing up to £1billion a year of tax debt to private sector agencies.

Offshore evasion is an obvious target given the amount and quality of information now available to HMRC and if big numbers are sought then Large Business avoidance will be in the front line. There is nothing radical here. Given HMRC’s inability over the last few years to predict with any degree of accuracy the take from various amnesties it is no surprise that observers are presently very sceptical on the taxman’s ability to delver.

Particularly intriguing is how the planned five-fold increase in prosecutions can be achieved. We will cover this in the next posting.

*Per Wikipedia
“E-, cyber-, and virtual are often used in names coined for “electronic” or computer-related counterparts of a pre-existing product or service”.

“McFedries observes that a backlash against the use of e- and cyber- can be traced to the late 1990s, quoting Hale and Scanlon requesting writers in 1999 to “resist the urge to use this vowel-as-cliché” when it comes to e- and calling cyber- “terminally overused”.