Government consultations on plans to cut the tax gap conclude

Government consultations on plans to cut the tax gap conclude

Consultations on plans to take strong action against promoters of marketed tax avoidance and non-compliant tax advisers have been completed.

The separate policy discussions are part of the government's overall aim of reducing the tax gap, an annual figure which estimates the difference between the amount of tax collected and that which is due in theory.

That figure currently sits at £46.8 billion, an amount which in and of itself explains why those in power see targeting the tax gap as one vital lever that can be pulled in the quest to grow the British economy.

Closing in on promoters of marketed tax avoidance:

While tax avoidance is the use of legal methods to reduce tax, as opposed to tax evasion which involves criminal acts and is punishable by the law, it can be ethically grey.

It is estimated that half-a-billion pounds of the tax gap total relates to marketed avoidance schemes sold to individuals.

The government says the avoidance market is dominated by disguised remuneration schemes, which claim to avoid tax and national insurance contributions on a worker’s earnings by – for example - paying earnings in the form of loans or other payments which are claimed to be not taxable.

The consultation states that HMRC not only does not approve of such schemes, but that they do not work and will result in those who use them having to pay interest and penalties in the long run, as well as the tax they attempted to avoid.

It sought people’s views on proposals in four areas:

• Expanding the scope of the Disclosure of Tax Avoidance Schemes (DOTAS) regime, which requires those operating such schemes to tell HMRC
  
  
• Introducing a Universal Stop Notice and Promoter Action Notice
  
  
• Tackling those behind the promotion of avoidance schemes through highly targeted obligations and stronger information powers
  
  
• Exploring options to tackle legal professionals contributing to the promotion of avoidance schemes

The majority of respondents said promoters of marketed avoidance schemes should face greater financial consequences, while there was also commentary around how many disguised remuneration schemes operate within the umbrella market.

This second concern is something the government is aiming to address through umbrella company reform legislation that will make recruitment businesses accountable for PAYE payments to workers supplied through umbrella companies.

Tackling non-compliant tax advisers:

While most tax advisers are competent and honest, there are some who promote non-compliant solutions to their clients.

The government estimates this activity cost HMRC £39.8 billion of tax in 2022-23.

As such, it is looking to bring in new legislation to target those advisers who flout the system. Any changes introduced will be in addition to the Autumn Budget 2024 announcement that all tax advisers who interact with HMRC must register with them from April 2026.

The consultation asked questions about proposals to:
 

• Make it easier for HMRC to gather information from tax advises about actions that lead to non-compliance
  
  
• Consider appropriate deterrents
  
  
• Explore ways of tackling poor behaviour through professional bodies
  
  
• Broaden the scope of the publication of details of those tax advisers who have been subject to HMRC sanctions

The plans were broadly welcomed by those who took part in the consultation, with the government promising to use all the responses to inform any future reforms in this area.