Is political pressure the reason HMRC still focuses on the little guy?

One accusation that’s frequently been levelled at HMRC is that they spend too much time and money chasing up honest tax indiscretions among sole traders and small businesses, and not enough on the activities of multi-national companies. But is this because of political pressure placed on the organisation?

In the year end 31st March 2014 – 15, the taxman recovered an additional £470m in tax owed by small businesses, while the amount recouped from large businesses fell by around £500m.

This has led many to believe that HMRC consider small businesses a ‘soft target’, more liable to make honest accounting mistakes and less able to negotiate a disagreement, or bring in a top legal team to fight a case.

In the fallout from the Panama Papers, the Government was quick to promise new regulations, greater transparency and the introduction of a corporate criminal conviction for failure to prevent tax evasion – most of which were originally (and quietly) announced a year previously.

However, a PAC report released in April identified £16bn of uncollected tax (around 3% of annual liabilities), and accused HMRC of taking a “woefully inadequate” approach to offshore evasion specifically. HMRCs headline figure of increasing tax evasion prosecutions 545 in 2011 to 1,288 in 2015 contradicts the PAC’s analysis, which indicated losses over the same time period.

David Sleight, Partner at law firm Kingsley Napley, believes that this discrepancy may be due to the manner in which HMRC’s criminal investigation policy is currently being deployed and the political pressures that influence it.

He said: “There are growing concerns from those who defend HMRC prosecutions that the governmental pressure to crack down on tax evasion is resulting in HMRC applying its criminal investigation policy in an inconsistent manner.”

“Cases that would previously have been deemed ‘civil’ in nature are now being pursued as criminal investigations, despite the fact that they generally take longer, are more resource intensive and do not guarantee any financial return at their conclusion.”

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