Forget Gary Barlow, ‘normal people’ are tax man’s target

HM Revenue & Custom is scrutinising savings accounts and property sales for evidence of tax avoidance.

Tackling tax avoidance is top of HM Revenue & Custom’s to-do list, but it’s not turning its attention to popstars or the super-rich: it’s looking at you.

Take That’s Gary Barlow has apologised for doing it, comedian Jimmy Carr got a telling off from David Cameron over it, and the public tut and shake their heads at it. Over the past five years the coalition made clamping down on avoiders a key tenet of their tax policy. The Conservatives are planning to turn the screws on ‘non-doms’ now they have power to themselves but they’re not the only ones who will feel the taxman’s wrath.

Lucy Brennan of accountants Saffery Champness said advances in HMRC’s computer systems makes it easier to go after ‘normal people’ for what could be seen as minor tax avoidance infringements.

Brennan said HMRC is using information fed into it by banks regarding savings and current accounts to see whether higher rate taxpayers are paying tax on the interest earned.

Although banks automatically pay 20% basic rate tax on interest for you, those who pay 40% tax have to pay the additional 20% themselves through a self-assessment tax return. The process works similarly for dividend payments received from stocks owned.

‘[HMRC] will pull information from the bank online so it knows [whether you owe tax on savings interest or not],’ she said.

‘Following the election they are sending out letters more, saying ‘are you sure you didn’t receive interest?’ because [they can see] you have £2 a month coming,’ she said. ‘If you don’t put it right you are filing an incorrect tax return…you could get a charge. Under careless and reckless [rules] you could get a maximum charge of 15-20% of the interest paid.’

Those who believe they can get away with selling a second property and not declaring the profit to the taxman are also a target.

‘People think they will just keep quiet and no-one will know,’ said Brennan. ‘But HMRC system knows. Your tenants may have put Sky TV in, or wanted to vote so put themselves on the electoral roll, and have been paying the council tax – [HMRC] has access to that information. Not paying it was tax evasion, she said.

Brennan added that ‘the people most at risk from [HMRC’s] systems are normal people’.

‘HMRC has started naming and shaming. [On the list] it is not the Gary Barlows with big tax bills, it is someone who owes £20,000,’ she said.

Despite the relatively small sums involved in some cases, the tax must be paid.

‘HMRC will send out a letter saying you owe 1p,’ said Brennan.

The high profile cases that have littered the news over the past couple of years are historical cases that are only now moving through court but the tax avoidance schemes, as used by celebrities and the wealthy, have been closed for a while.

‘The revenue has closed down a lot of the schemes and the opportunities for tax avoidance are not there anymore,’ she said.

One of the main problems with the UK system is that most people do not file tax returns, unlike the US system where everyone is required to file a personal return every year.

‘You receive your salary and you pay your 40% tax,’ said Brennan. ‘We are not educated about tax returns.’