HMRC tip-off hotline and catching the crooks

Grassing up

We are told that 74,000 calls were made to HMRC's tip off-line in 2011, reporting suspected tax evaders. That is apparently rather fewer calls than were made in 2010.

I would like to see all dishonest tax-dodgers caught. The so-called black economy consisting of people who offer to re-lay your drive or clean your house soffits and fascias for cash and all the other “cash-in-hand” people who knock on your door cost the country billions in lost tax. Dave Hartnett banged on about this, I remember. He was right in that respect.

Burst water mains

The tax leakage through dishonest tradespeople is very likely much larger than the (legal) avoidance by large corporates and the illegal VAT fraudsters though I am always very pleased when tax crooks are caught and sentenced. Even the driveway-laying tax evaders can apparently get large scale. 

Most of the 74,000 tip-offs will relate to small scale tax-evasion though in aggregate there will be a large amount of tax lost. That is tax stolen from honest taxpayers' back pockets, considering that the rest of us have to make up the deficit caused by the fiddlers.

Resources

What concerns me about the tip-off line is HMRC's resources to deal with the information received. They may have the profiling software, but the false and malicious allegations will need to be weeded out and then the others followed up. Logically, it would be easier to concentrate on the bigger fish because the potential tax recovery would be greater. With any investment in business, the yield is important because it means more profit, even when we are talking about HMRC. Apparently they lack resources even in that area.

HMRC have “task-force” campaign around specific types of businesses but it seems to me this is just nibbling around the edges. I think that, coupled with the profiling software, more well-trained and preferably experienced staff should be taken on. That is anathema to those on high who want to see further staff cuts in Government departments, but potentially the yield should justify the investment costs.

If HMRC want experienced tax people with noses for weeding out the crooks, maybe they should hire some tax practitioners from the private sector. I could make myself available on a part-time basis if I had a suitable offer (I mean it) but my point is that experience in real tax issues is what HMRC requires to sniff out smaller-scale tax evasion. Unfortunately with the cuts and early retirements, experience is what HMRC staff lack.

Fat cats and gutter rats

The other week my wife and I were in our front garden when a man probably in his fifties came up to us. He said that about three years ago he had washed and scrubbed the soffits and fascias on our house and cleaned out the gutters. I didn't remember him, but my wife did for it was she that had commissioned him to do this when he had visited previously.

This prospecting soffit cleaner (Let's call him Stan Soffit) offered to “do” our house again for £140 while pushing a business card into my hand. I pulled a face because that seemed an excessive hourly rate for the job. The conversation continued:

Stan “OK, mate, I'll do it for £90 cash”

Me (pulling another face) “Actually, I am a tax adviser”

Stan “OK mate, no offence.” (Snatches business card out of my hand) “You won't be needing that then”

Stan the scrubber then turned and trotted to his van, and drove to the next turning to turn round as we live in a cul-de-sac. Coming past again he slowed down and yelled “No offence mate, eh?” before disappearing without prospecting the other twenty odd houses in our road.

Actually I was rather offended. People like him give small businesses a bad name. They are also effectively taking money out of all our back pockets because if they don't pay tax on their earnings, everyone else has to pay more.

Dave Hartnett, Permanent Secretary for Tax (a post he invented himself really) and therefore head of HMRC believes that the small business population makes up a sizeable portion of the tax gap and he may well be right. He thinks that maybe the Chinese idea of a turnover tax would be an effective way of collecting revenue. Of course this would not catch characters who never declare their income anyway. Dave must think that everyone is fiddling their expenses. I think that is a very misguided idea. The big problem is not with businesses submitting fraudulent expense records with their accounts and tax returns. It is with those who don't declare some or all their earnings like our friend Stan (well, no friend of mine).

HMRC keeps coming up with plans for favourable treatment for dentists, plumbers and tutors who have undeclared income. What they need is some joined up thinking to catch those working in the black economy who are evading hundreds of millions of pounds of tax.

Of course it doesn’t make such good headlines as chasing billionaires and multi-millionaires with their tax schemes and tax havens. Campaigners such as Tax Research UK wouldn't get their media interviews out of drive tarmac cowboys or Stan Soffit. HMRC likes the fat cat headlines too because it makes them feel legitimate, but they are failing badly at catching the possibly million-plus small-time tax fiddlers very likely costing the Exchequer more in lost tax.

A turnover tax would be bonkers anyway. I guess it would just in effect be an extension of VAT for service providers maybe with a flat rate, but what about retailers who have high turnovers but lowish margins? It would all be unworkable, often unfair, and would miss the targets.

Having been in my business a long time I get a feeling about everyone I meet in business and indeed also in a private capacity. Darren, our window cleaner, says he will clean our soffits, fascias and gutters for £90, a figure he quoted without knowing what Stan had said. I like Darren too. He is happy to take a cheque; a good sign.

As part of my business I help tax defaulters, which means those who have not made tax returns or who have made incorrect tax returns, to come out and pay their dues. For all those who have either been caught or, as happens quite often, get a fit of conscience, there are so many below HMRC's radar.

Never mind the fat cats. Let's round up the rats robbing us in our gutters.