Is Tax Evasion On The Rise?

A recent freedom of information request shows a slight drop in the number of reports of suspected tax evasion made by members of the public and businesses in the last tax year. Unfortunately, it seems that this is not because the nation is becoming more law abiding – in fact quite the opposite might be true.

During the hight of the pandemic, HMRC’s tax evasion reporting service was temporarily halted in order to prioritise other critical areas of focus by HMRC. This included work on the coronavirus relief scheme which is HMRC administered. Despite the stoppage, the number of tips showed only a very small drop of 3% - a total of 110,848 whistleblowing reports.

Bear in mind these tips relate only to suspected tax evasion i.e. situations where a person believes someone has broken the law, most often by concealing their true income or the value of their assets. This is often referred to as “tax fraud” but in fact encompasses a wide range of statutory and judge made legal offences.

The reasons that tips have not fallen significantly in the way you would expect is not entirely clear. A few of possibilities include:

• The covid relief scheme effectively gave rise to a whole new type of tax fraud. The gigantic scheme appears to have been widely abused. The anonymous covid fraud hotline launched in October 2020 allowed members of the public to report misuse of the scheme in the same way as other types of tax fraud. The public may regard the illegal exploitation of a much-needed scheme in the context of a healthcare emergency as unacceptable behaviour which they may view differently to a plumber who they suspect might be underreporting their income.

• A possible change of our national mindset which has happened over time where failure to pay tax that is due has gradually become less and less socially acceptable.

• A long-term impact of the last recession and resultant austerity measures. As the UK’s public finances have become tighter and cuts have bitten in, pressure on public service such as the NHS has grown. The public may have become more aware of the direct impact of tax evasion on those services.
  
  
• The manner in which this issue had been handled by the press might be part of the answer to why numbers have not dropped significantly. Think for example of the vicious coverage of the tax evasion conviction of ex-BHS owner Dominic Chappell who went to prison for 6 years for his offence.
  
  
• A steep rise in the number of prosecutions and convictions for tax fraud could have served to highlight the issue with the public. However, it could equally be expected to discourage those who are considering keeping their true financial position secret from HMRC so the impact of those cases in uncertain.

It is worth noting that not all of these reports will have been made by members of the public.

Accountants, lawyers and many financial service organisations like banks, insurers and stockbrokers have strict disclosure requirements. They are obliged to notify the authorities if they believe that tax evasion is or might be taking place. The rules sometimes mean a notification needs to be made even if that offence arose overseas and outside HMRC’s jurisdiction. All that above said, one might expect that the number of these type of notifications would not change rapidly.

Things may all become a little clearer when next year’s figures are available. It would be helpful to know what proportion of reports specifically relates to the coronavirus scheme.

What do you think? Has there been a sea change in the way tax evasion is viewed as a result of the pandemic or otherwise?

If you would like to know more about any of the above, please do let us know. We have significant experience in handling HMRC enquires.