Budget boost for HMRC in new push on tax evasion

Around £60m earmarked for serious and complex tax-crime investigations, while £300m will target small businesses, public bodies and affluent individuals

Stretched HMRC tax investigators are to be armed with £800m of extra funding over the next five years to combat tax evasion and non-compliance, the chancellor has promised, as part of a drive to raise £7.2bn.

Only £60m of the new funds will be devoted to serious and complex tax-crime investigations, though this sum would largely be focused on wealthy individuals and companies. George Osborne hopes to treble prosecutions in this area, taking the annual number of cases to 100 by the end of the parliament, raising £600m in the process.

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Last year, HMRC brought 915 prosecutions, up from 770 for the previous 12 months. The tax authority’s annual report does not break down which prosecutions it classes as serious and complex, or which relate to wealthy tax evaders.

Osborne said the measures would raise £7.2bn over the course of the parliament. That includes more than £2bn of additional receipts from a crackdown on small and mid-sized businesses, public bodies and individuals classed as “affluent” — but not “wealthy”. The Treasury is giving HMRC £300m to spend on this push.

Extra funds for HMRC come just a month after it emerged that the tax authority had been told it would have to find an extra £80m of savings this year at the same time as pushing through a modernisation programme.

HMRC has already seen headcount reduced by 20% since 2010, though it insists resources devoted to areas such such as evasion and avoidance by wealthy individuals and companies have been strengthened.

Osborne said, in addition to a prosecution push, HMRC’s “name and shame” lists would be widened to include serial users of failed tax avoidance schemes. “These people should have nowhere to hide,” he said.

The chancellor also announced a raft of measures in anticipation of a potential tax avoidance stampede created by plans to further reduce the corporation tax rate.

Tax experts quickly warned that cutting the corporation tax rate to 18%, below the 20% basic rate of personal income tax, is likely to tempt many to reconfigure their employment earnings into corporate income.

Acknowledging this risk, the chancellor said he would tighten the rules that distinguish between company income and self-employed income to curb so-called “disguised employment”. In addition, there would be changes to tax treatment of dividends designed to put off those hoping to make quick tax gains through incorporation.

The budget smallprint reveals only a relatively modest amount – £700m over five years – is expected to flow from “enhanced compliance” among wealthy taxpayers.

Almost £1.3bn of extra savings would come from a renewed crackdown on contraband and smuggled alcohol and cigarettes, while £860m would result from a focus on the hidden economy, including efforts to extract data from internet firms to trace companies and individuals trading illegally outside the tax system.