Unpaid tax due to lack of education, not avoidance, says Saffery Champness

The public purse is missing out on £10 billion worth of unpaid tax, but that is mostly down to bad management born of ignorance rather than positive attempts to avoid payment, according to accountancy firm Saffery Champness.

Carolyn Aitken, tax director at the Edinburgh office of Saffery Champness argues that despite pledging to crack down even further on tax avoidance, and committing to spending £155 million on additional resources and new technology for HMRC, the government is overlooking the main reason why so much tax is outstanding and should consder a different approach.

Ms Aitken explains:”Future taxpayers leave school with little or no financial education, and as more and more people are self-employed and are burdened with the responsibility of looking after their own tax affairs, the shortfall is certain to continue if not worsen. On the whole people are trying to get it right, but without relevant tax education and guidance, they are making mistakes. And it is these mistakes that are the biggest contributor to the UK’s tax gap, not aggressive tax avoidance.

Last week the chancellor Philip Hammond outlined the Government’s seven-year plan aimed at tax cheats designed to bring billions of pounds into the public purse, with internet companies that legally avoid taxes by shifting profits overseas the main target, but all businesses also coming under much greatly scrutiny.

The seven-year plan lists 18 different ways the Government is looking to raise the revenue. These include extending how long HM Revenue and Customs can go back in time to assess non-compliance for offshore tax evaders.

Double taxation relief, where tax relief is generated on losses for both foreign and other offices of a company, will also be restricted from today.

The Government is also looking to crack down on online VAT fraud and will launch a consultation in the Spring to explore how digital platforms can ensure users pay their fair share of tax.

The initiative also follows new rules that have been raised over the last few years which are attempting to make ‘enablers’ of tax avoidance, including IFAs, liable for penalties.

In his Budget speech, Mr Hammond said the government had secured £160bn in additional tax revenue since 2010, and that his latest steps would raise £4.8bn.

The figure includes £2.3bn of additional tax revenues brought in after committing £155m in new resources for HM Revenue & Customs.

However, Ms Aitken warns that the new measures will hit smaller firms and individuals in a sector that may be better approached with a different tact.

She said: “The government has launched an all-out attack on the hidden economy, aggressively investigating sectors and demographics where they presume unpaid tax to be lurking in the shadows, but taxpayers have lost the appetite for racy tax planning. Despite avoidance being the smallest contributor to the overall shortage, the government will be targeting all sizes of businesses to recover tax debt through a new taskforce, which will specifically tackle tax debts more than nine months old. But maybe there is more to be gained from improving knowledge and education than chasing after a minority and diminishing sector.”