Half of large businesses ‚ under investigation‚ at any time ‚ and one in ten small businesses, HMRC claim

20 Apr 2018

The Treasury Committee began its inquiry into tax avoidance and evasion this week (17), with a session with two witnesses: David Richardson, Interim Director-General, Customer Strategy and Tax Design, HMRC and Esther Wallington, Chief People Officer, HMRC.

Parliament and tax reliefs

Tax reliefs are always a potential ‚ honeypot‚ for promoters, said David Richardson, but most of those reliefs have anti‚ ëavoidance clauses in them and they now have the general anti‚ ëabuse provision to deal with abuse. Richardson said schemes that describe themselves as film schemes are not using the film scheme relief at all, for example Eclipse schemes were about tax relief on borrowing and the Ingenious film scheme about creating a trading loss set sideways against other income.

Compliance policy

Richardson denied an assertion by Chair John Mann that HMRC ‚ loves‚ to go after the ‚ sole trader, the white van man, the person running a childcare business from home‚ as opposed to the wealthiest. The HMRC director general said one in two of every large business is under investigation by HMRC at any one time and, last year, the tax authority collected £8 billion in compliance yield from large business. ‚ If you look at small businesses, the number of businesses under investigation at any time is about one in 10‚ , he said.

The number of avoidance cases currently open is about 80,000, with some of the cases going back about 10 years.

HMRC have tripled the flow of cases going into litigation, and now has 75 per cent of the ‚ value in schemes‚ either in litigation or about to go into litigation. Richardson expects that HMRC would be able to settle a number of the 25 per cent that are not in litigation with follower notices off the back of cases that they would hope to win in the courts.

Tax Gap

What is important with the tax gap is the trend, said Richardson, but the tax gap figure is unlikely to be 100 per cent accurate, he admitted.

Trends in avoidance schemes

HMRC set up a new directorate four years ago to deal with marketed avoidance. Richardson said: ‚ If you go back to 2005‚ ë06, we were notified of something like 600 schemes. Last year we were notified of 15, so there has been a huge fall in the number of marketed schemes. As for the big schemes, like film schemes, which are the ones that are commonly reported on, because they are the ones that we have been tackling and litigating from the past, there are no equivalents of those schemes around now.‚ Schemes in the employment sector are still going on, however.

You will now not find the large accountancy firms promoting to clients the sorts of schemes that were around in the past, Richardson said, with promoters of new schemes pushing them out via small high street accountants. The Crown dependencies and overseas territories feature in some of those schemes. ‚ With offshore situations, it is the information that is the challenge. The previous attempts we have made have given us partial information, which is why they have not always produced as much money as is probably owing. That is why the common reporting standard is such a big step forward, in terms of giving us systematic worldwide data on people trying to evade tax.‚ He said the penalty for enablers of avoidance schemes is also a ‚ fundamental‚ help.

The diverted profits tax, which was introduced in April 2015, has so far yielded about £280 million - HMRC think it will raise about £1.3 billion by 2020.


In the avoidance space, HMRC have pretty well got the ‚ full hand‚ that they have been looking for as a result of measures that have been introduced over the last five or six years, said Richardson. Probably the biggest game changer is accelerated payment notices which ‚ has had a seriously large dampening effect on new avoidance‚ , he added.

HMRC resourcing

Richardson explained to Mann that HMRC‚ s compliance staff are based all around the country which is one of the‚ inefficiencies‚ they have. ‚ If you take counter‚ ëavoidance, where there are about 1,300 people (with no vacancies), they are currently in around 60 different offices. One of the benefits we will get from the regional centre programme is having teams that are much more coherent in size and provide better careers.‚ Mann wanted to know about the governance of these 1,300 staff. He was told the Treasury sets an annual target in terms of compliance yield for HMRC but individuals will not normally have a personal target but rather a flexible team target (work in teams of 20 people).

In the year just gone, HMRC recruited around 4,600 people, added Esther Wallington.

Alison McGovern wanted to know how many staff engaged in counter‚ ëavoidance and evasion have left in the past four years. Wallington replied there are no specifics for counter-avoidance, but overall HMRC ‚ attrition rate‚ was 8.5 per cent last year and that has been reasonably stable. It is around seven per cent across the customer compliance group, which is where tax specialists are, and slightly higher in the customer services group. ‚ We have quite low resignation rates across the organisation.‚

Wallington explained to Nicky Morgan that people who join in compliance, go on to a 26‚ ëweek training programme.

In general, complaints about HMRC are dealt with within local management lines and then an executive committee look at those every month and annually to establish whether there is a pattern.


The peak of DOTAS disclosure was 2005-06, when there were 600 and in 2017-18, the last year, HMRC had 15 disclosures.

Transformation programme

HMRC estimate that they will take 90 per cent of current people to the regional centres.

Bulk data leaks (Panama Papers and Paradise Papers)

Stewart Hosie led questions on this topic. Richardson said HMRC have collected something like £2.8 billion over the last five years from offshore evasion work, but ‚ we are on the cusp of that changing quite considerably going forward‚ , in part owing to the big leaks made in the media. The common reporting standard has now been signed up to by 100 jurisdictions around the world. All the jurisdictions that people commonly term as ‚ tax havens‚ are signed up to that, to exchange information automatically. HMRC have had the first batch of that data from the first 50 jurisdictions and this autumn are due to get information from the 100 jurisdictions that have signed.

HMRC do not have the Paradise papers, despite asking for them from the people who have published them. They have not been offered to them to buy. (HMRC did pay for the Panama Papers.) HMRC have been through the information from the Paradise papers that has been published with a ‚ fine-toothed comb‚ . Most of it does not relate to the UK and most of the detail that relates to the UK is information the tax authority already had and were acting on.

Richardson made a general point to Nicky Morgan that over the four years since counter‚ ëavoidance was set up, HMRC have collected £8.5 billion. That contrasts with the year before counter‚ ëavoidance was set up, where they collected about £500 million from avoidance work.


David Richardson confirmed to Hosie that one in 10 small businesses would be ‚ under investigation‚ at any time. Hosie questioned whether chasing a business under investigation, ‚ with all the anxiety that brings, because they are missing an invoice for some flooring for their front shop or a bit of advertising for the local cycle company‚ is really a good use of time and resources. It would be much easier if they could go into their local tax office with their accounts and have them checked before they are submitted, he suggested. Richardson replied that 46 per cent of the tax gap is attributable to small businesses. ‚ About 28 per cent of the tax gap is attributable to a failure to take reasonable care and error, and a large amount of that is attributable to small businesses. The way to deal with that, ideally, is to stop it happening in the first place‚ , said Richardson. He added that Making Tax Digital for Business is the modern equivalent of being able to go into the tax office.


Trying to help people to manage their business more systematically by keeping real‚ ëtime records electronically should help them run their business, but will also facilitate them getting their tax right, said Richardson. Making Tax Digital for Business starts with VAT in April next year. HMRC will be monitoring in real time the performance of that and the impact that it has, so 12 months on from the start of that is when HMRC will begin to have information that they could share.


Rushanara Ali cited Transparency International‚ s estimate that £4.4 billion of questionable property in Britain is being used to avoid tax. Richardson said the recent Criminal Finances Act gives them further powers in that area.

Cryto currency

HMRC‚ s assessment of cryptocurrencies such as Bitcoin is that there are not huge tax ‚ writs‚ that have come to fruition, but it is an area that they are concerned about and watching.

Overseas territories and Crown Dependencies

John Mann said the OBR has pointed out that the tax take from the Crown dependencies (CDs) is only a quarter of what HMRC had hoped to get but Richardson would not be drawn on which OTs and CDs are least helpful, only stating that ‚ none of the overseas territories (OTs) have been difficult or not co-operated‚ . He did promise to give Mann a list of how often there have been meetings with them over the last year.

The full session can be read here.