- £816 million in fines issued in 2018/19
- Fines issued rising almost twice as fast as amount of tax collected by HMRC
- Self-assessment fines falling; offshore tax evasion fines soaring
The amount in fines issued by HM Revenue & Customs (HMRC) has surged by nearly a third (32%) in just three years, according to official data obtained by Price Bailey, the Top 30 accountants.
According to Price Bailey, £816 million in fines was issued by HMRC in 2018/19, up from £620 million in 2015/16, an increase of 32%. This is a much faster rate of increase than the amount of tax collected by HMRC, which has increased by 19.2% from £495 billion to £590 billion over the same period.
Price Bailey says that the data illustrates how much more effective HMRC has become in identifying non-compliance while also imposing substantially more punitive fines in many cases.
Price Bailey explains that the amount of data on taxpayers at HMRC’s disposal, and its ability to analyse that data, has significantly increased in recent years. This has provided HMRC with ammunition to challenge many more taxpayers despite having fewer staff.
HMRC has developed a powerful software system, known as “Connect”, which is able to analyse vast amounts of personal and commercial information, seeking to establish links between individual taxpayers and businesses, income, assets and transactions. “Connect” was launched with limited functionality in 2010 but has since gained additional capabilities and access to data, including financial information from British Overseas Territories, 60 OECD countries as well as numerous other government bodies and financial institutions.
Jay Sanghrajka, Tax Partner at Price Bailey, comments: “The amount issued in fines is increasing at a much faster rate than the amount collected in tax, which means that HMRC is fining a higher proportion of taxpayers and using new powers to impose substantially heavier penalties.”
“The amount of data HMRC collects and cross-references allows it to form a more complete understanding of taxpayers’ liabilities. This means that HMRC can challenge a greater number of taxpayers at a significantly lower cost.”
“Discrepancies now come to light much sooner. Its software can automatically check information reported in tax returns against bank accounts and make sure they tally. Previously, checks of this kind would have been time-consuming but HMRC’s software can spot any inconsistencies swiftly and flag those for further investigation.”
Over 100 countries have signed up for the automatic exchange of information called the Common Reporting Standard or CRS. The Government brought in new rules referred to as Requirement to Correct which require a taxpayer to correct any failure to declare tax on overseas assets by 1 October 2018. Tough new penalties have been introduced from 1 October 2018 for incorrect returns relating to overseas assets.
He adds: “HMRC’s greater focus on offshore tax evasion goes hand-in-hand with new powers to impose much heavier fines on taxpayers for non-compliance. HMRC can charge an increased penalty of up to 200% of the value of the outstanding tax where the income or asset that gives rise to the penalty is held outside the UK compared to 100% in normal circumstances.”
Value of penalties issued by HMRC £ million
Fines imposed for self-assessment returns falling; fines for offshore tax evasion rising
According to Price Bailey, while the number and value of fines imposed in some areas are falling, in other areas there has been a dramatic increase in the value of fines imposed.
The value of penalty payments made in relation to self-assessment tax returns has more than halved over the last two years, from £64 million in 2015/16 to £21 million in 2017/18.
Conversely, the haul (including penalties) from investigations undertaken by the Offshore, Corporate and Wealthy unit at HMRC has jumped from £325 million in 2016/17 to £560 million in 2018/19.
Jay Sanghrajka says: “In many areas of tax HMRC is undertaking fewer investigations and issuing fewer penalties. In other areas, such as taxpayers with assets and income offshore and transfer pricing disputes with multinationals, HMRC has been able to ramp up the amount of tax and penalties.”
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About Price Bailey
Price Bailey is a top 30 accountancy practice specialising in providing accountancy and business advice to enable the growth of regional, national and international businesses. In addition to traditional accounting services, the firm has a range of specialists in many areas which combine to provide a complete, integrated business offering. These include tax consultancy, corporate finance, strategic planning, insolvency & recovery and employment law.