personal finance

Collapse in new tax probes as HMRC focused on pandemic policies


HM Revenue & Customs cut the launch of new tax probes by more than half after the coronavirus crisis first erupted to concentrate on implementing the government’s Covid-19 support plans, a freedom of information inquiry has revealed.

But anybody hoping to benefit from the temporary lull in investigations may be disappointed, as the agency has refocused its efforts on compliance since July and tax advisers are warning of a coming wave of probes.

“Tax avoidance and evasion has not gone away and we expect there to be a stockpile of cases to be opened before corporate and personal tax filing deadlines of December 31 and January 31 respectively,” said Dawn Register, head of tax dispute resolution at BDO, an accountancy firm.

The freedom of information (FOI) request disclosed that between March and July, HMRC initiated 61,000 tax investigations — a dramatic drop on the 128,000 inquiries opened over the same period in 2019.

In May, at the height of the coronavirus lockdown, the agency opened only 10,000 investigations compared to 31,000 the previous May. There were also sharp falls in the number of investigations launched in March, April and June — with 20,000, 7,000 and 10,000 investigations opened respectively, compared to 32,000, 16,000 and 20,000 in March, April and June 2019.

However, as the lockdown eased in July, HMRC stepped up its compliance activity — when 14,000 new investigations were opened — an increase of 40 per cent on June’s activity but still far below the 29,000 opened in July 2019.

“HMRC helped support businesses with a package of extraordinary measures during the national lockdown but has now switched its focus back to compliance and will be pursuing companies of all shapes and sizes in all sectors to raise vital funds for the exchequer,” said Ian Anfield, managing director of Hudson Contract, a tax advisory firm focused on the construction sector, which requested the FOI. “The costs for Covid-19 are mounting by the minute and you can bet your house that businesses will be picking up the bill.”

In April, HMRC suspended some investigations into individual and business taxpayers to focus its efforts on administering the government’s Covid-19 support schemes. These included the Coronavirus Job Retention Scheme, the Self-Employment Income Support Schemes and extending the time those using Self Assessment are given to pay tax.

Its chief executive, Jim Harra, has pledged it will recoup money wrongly paid out via the Covid-19 support packages due to fraud and error — estimated to be up to £3.5bn.

In its FOI response, HMRC said: “As with many of our activities, we have reprioritised our compliance work to focus primarily on the work which supports and protects individuals, businesses and the economy during this extremely difficult time.

“We will continue to prioritise tackling serious fraud and criminal attacks on the tax system, while increasing wider activity to make sure individuals and businesses pay the right tax, where that is feasible for HMRC and the customer.”

Ms Register said it was “wholly appropriate” that HMRC had focused resources on administering the chancellor’s Covid-19 efforts.

She urged individuals and businesses to double check any claims they had made to the Covid-support schemes and tell HMRC if they had wrongly been given payments they should not have received by the tax office’s deadline of October 20.

“After this it will be ‘gloves off’ for HMRC to check up on any claim made and pursue incorrect claimants using both criminal and civil powers,” she warned.

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