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HMRC won’t admit how much tax is lost offshore

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Original article by Simon Lock and Ed Siddons republished from TBIJ under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.

Sign outside HMRC in Whitehall, London SW1
Sign outside HMRC in Whitehall, London SW1

The taxman has the numbers needed to estimate how much cash is lost to overseas havens – but it isn’t sharing the details

An MP has demanded HMRC release its official estimate of how much tax is being lost to offshore havens – information we discovered is currently being withheld by the authority.

A Freedom of Information request by TaxWatch, shared with TBIJ, revealed that in apparent contrast to its previous claims, HMRC holds data needed to estimate the offshore tax gap. But it would not hand the information over.

“We urgently need HMRC to clarify the situation – otherwise we will never crack down on tax dodging,” said Lloyd Hatton MP, who sits on the Public Accounts Committee.

The offshore tax gap is the difference between the amount of tax the UK should collect from offshore sources, and what it actually receives. It puts a number on the cost to the public when people and companies move their money offshore to avoid, evade or fail to declare tax.

HMRC has previously claimed that it holds no estimate for the overall offshore tax gap. But in response to a recent FOI request, the tax authority revealed that it does in fact hold a figure for “offshore tax at risk”.

This number is the amount of tax HMRC thinks could be lost because of avoidance, evasion and non-compliance. HMRC has said itself that this could be used to work out the offshore tax gap. All HMRC would need to do is subtract from it another number called the “compliance yield” – the amount HMRC did manage to claw back through enforcement activities.

HMRC has even published its figures on the compliance yield for offshore-related tax, meaning it already has data needed to calculate the offshore tax gap figure.

But in response to our FOI request, HMRC refused to disclose the “tax at risk” figure on the basis it could “prejudice the effective conduct of public affairs”.

The correspondence calls into question direct statements made earlier this year by the head of HMRC to the Public Accounts Committee (PAC), whose role is to scrutinise government departments.

In February, the authority’s CEO Jim Harra wrote to the PAC’s chair to say his organisation did not hold figures on the total offshore tax gap. Instead, he referred to a number published by the agency in 2024.

Back then, this partial number – gathered from self-assessment tax returns – was referred to as “experimental statistics” and it estimated that tax from offshore sources was underpaid to the tune of only £0.3bn.

We urgently need HMRC to clarify the situation – otherwise we will never crack down on tax dodging

Lloyd Hatton, MP

This figure has been called into question as too low by the Public Accounts Committee. By comparison, the UK’s entire tax gap is estimated by HMRC to be nearly £50bn.

Commenting on the new FOI correspondence, Hatton said: “The Public Accounts Committee report [in July] showed that HMRC is incapable of identifying those super-wealthy individuals who choose to squirrel away their wealth – often using offshore accounts in tax havens.

“Without this, it cannot effectively pursue those who deliberately avoid or evade paying their fair share of tax.

“The Committee has pressed for greater transparency concerning tax lost offshore, without this information we cannot properly assess whether HMRC’s compliance efforts are effective or adequately resourced. And – even more crucially – we cannot go after egregious tax dodging.”

A spokesperson for TaxWatch said: “We understand that HMRC has a responsibility to ensure that it’s publishing accurate information. But there seems undue secrecy around this figure, which is routinely published for other types of tax and taxpayer.”

It marks yet another turn in the hunt for clarity on just how much tax is avoided or evaded offshore. In 2022, then Treasury Minister Lucy Frazer vowed that HMRC would publish the much-desired offshore tax gap figure, but in the run-up to the general election, HMRC demurred.

A spokesperson for HMRC said: “We are working to assess the feasibility of broadening the scope of the published estimate of the offshore tax gap, as stated to the Public Accounts Committee, and will report back to them.”

Original article by Simon Lock and Ed Siddons republished from TBIJ under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.

Continue ReadingHMRC won’t admit how much tax is lost offshore

Not a single company charged with tax evasion under stronger HMRC powers

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Original article by Ed Siddons republished from TBIJ under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.

HMRC has not charged a single company under landmark legislation passed six years ago to crack down on corporate tax evasion.

Critics say the data, released after Freedom of Information requests by the Bureau of Investigative Journalism and TaxWatch, suggests that HMRC is undermining its own deterrents against corporate tax evasion by failing to use its criminal enforcement powers.

Margaret Hodge MP called the findings appalling and said the lack of enforcement had rendered the law “a paper tiger.”

The Criminal Finances Act 2017 introduced new powers to charge companies and partnerships operating in the UK that failed to stop their employees or associates from facilitating tax evasion, regardless of where in the world the tax was evaded.

One part of the new law, known as the Corporate Criminal Offences clause, drastically lowered the bar for prosecuting businesses that enabled tax evasion. It introduced “strict liability”, meaning that a company cannot plead ignorance of the wrongdoing to evade a criminal charge, and prosecutors do not have to prove intent in order to secure a conviction.

It also threatened unlimited fines in the case of established wrongdoing. Companies can avoid punishment if they have reasonable procedures in place to prevent the facilitation of tax evasion.

The law both made criminal prosecutions easier to pursue and strengthened the penalties. But critics say the refusal to charge a single company has cast serious doubts on the landmark legislation.

TBIJ, TaxWatch and The Observer previously revealed that the number of concluded prosecutions after HMRC investigations had fallen by more than two-thirds in five years, with only 11 wealthy taxpayers prosecuted in 2022.‘A deterrent that you never use is no deterrent’

“The lack of any Corporate Criminal Offence prosecutions is, I think, quite serious,” said Dan Neidle, founder of Tax Policy Associates and formerly head of tax at Clifford Chance. “A deterrent that you never use is no deterrent.”

Criminal penalties were the only reliable way to change behaviour, while the overreliance on civil penalties and fines often failed to curb serious wrongdoing, Neidle said. “If you disarm yourself and don’t use the criminal tools that you have available, then you are missing the trick.”

A spokesperson for HMRC said: “Corporate criminal offences were introduced to encourage organisations to put preventative measures in place to stop tax evasion. Our efforts have helped drive a corporate culture shift towards anti-tax evasion awareness, which has led to new procedures across business sectors.”

HMRC told TBIJ it has 11 live investigations and is looking into a further 24 possible cases. It has also reviewed and rejected an additional 94.

Hodge said: “We are in the midst of a cost-of-living crisis, and tax evasion is costing our economy billions each year. So it is appalling that HMRC has failed to prosecute a single enabler of tax evasion.

“We know that there continues to be a whole industry that supports those who don’t want to pay their fair share of tax. We cannot drive cultural change in that industry if its members are under the impression that this offence is just a paper tiger.”

HMRC prioritises the recouping of money lost to tax avoidance and evasion through civil settlements rather than prosecutions, according to Robert Palmer, the director of Tax Justice UK. He cited the risk and cost of prosecuting powerful opponents with deep pockets.

“HMRC is routinely outgunned by the private sector,” he said. “It’s a real problem, because the minute you go against someone who’s rich, they can lawyer up and drag things out. HMRC are outmatched … particularly when it comes to the professional enablers and facilitators.”

Other legislation with similar “failure to prevent” clauses has resulted in charges and convictions. The UK Bribery Act 2010 made it a crime to fail to prevent bribery and has led to high-profile prosecutions, including the oil and gas company Petrofac in 2021.

The realistic threat of criminal prosecutions means “the Bribery Act continues to be taken very, very seriously,” said Neidle, “whereas the Criminal Finances Act is dropping off the radar.”

Susan Hawley, director of Spotlight on Corruption, said: “Legislation only has a deterrent effect for so long without any meaningful enforcement.

“The government urgently needs to get to the bottom of whether this lack of prosecutions is related to failures of political will or resourcing issues at HMRC, or deeper problems with the wording of the offence.”

Original article by Ed Siddons republished from TBIJ under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.

Continue ReadingNot a single company charged with tax evasion under stronger HMRC powers