HMRC’s crackdown on tax avoidance

New measures to reduce tax avoidance could raise up to £6.5 billion for the UK government by 2029. By improving the powers given to HMRC, the government are looking to stop people from exploiting the tax system and reclaim unpaid taxes.

The new approach will place more scrutiny on business owners’ tax reporting – and potentially criminalise tax avoidance in the future. 

Government tightens grip on tax avoidance

In the Spring Statement, Chancellor Rachel Reeves announced the government is “continuing our investment in cutting edge technology, investing in the HMRC’s capacity to crack down on tax avoidance and setting out plans to increase the number of tax fraudsters charged every year by 20 per cent.”

The government plans to do this in three ways:

1. Making it harder for people to use tax avoidance schemes
2. Increasing the likelihood that those who do it will be caught
3. Imposing stricter penalties to discourage people from doing it at all  

1. Making tax avoidance more challenging

The government plans to tighten the tax loopholes most often exploited, while going after the people behind tax avoidance schemes. Speaking during the Spring Statement, the Chancellor said: “When working people are paying their taxes while still struggling with the cost of living, it cannot be right that others are still evading what they rightly owe in tax.”

Reducing the grey areas in tax legislation is the government’s first step. The plan is to change the wording of current legislation, making it more precise and harder to twist.

HMRC is also set to become stricter with businesses that use highly technical or interpretive approaches to their tax returns. They’ll also apply more scrutiny to complex tax structures to catch any potential breaches. 

HMRC’s overall approach will focus on those who are acting ‘not in the spirit of the law’ and will draw on the underlying intention of the law, rather than the specific wording of legislation.  

2. Increased enforcement 

In the Autumn Budget, the government announced their plans to recruit 5,000 new HMRC compliance officers and 1,800 debt collectors. This will make it easier to catch and prosecute those intentionally avoiding their tax bill.  

And the government could broaden the powers of HMRC to gather information during complex tax investigations. They’ll do this by increasing the use of AI and advanced analytics to help identify potential tax avoidance. 

There’ll also be an informant scheme introduced where individuals can report businesses suspected of tax fraud and get compensation in return. The exact details of how much compensation isn’t clear yet, but could ‘be equal to a proportion of the tax take’.

3. Discouraging tax avoidance 

The government is trying to stop tax avoidance schemes by giving HMRC more power to investigate and stop the people running them – while also putting in place harsher penalties for those who knowingly try to avoid paying their full amount of tax. 

HMRC uses ‘stop notices’ against promoters of tax avoidance schemes. Once a stop notice has been issued, it’s a legal requirement to stop promoting the scheme – or face severe penalties.

But a trend of schemes closing and reopening under another name (known as ‘phoenixing’) has meant HMRC have struggled to stop these schemes permanently. 

To change this, the government could introduce a ‘universal stop notice’. This would give HMRC increased powers to stop the people behind the schemes, rather than the schemes themselves. Criminal proceedings could then be brought against anyone who continued to offer tax avoidance schemes.

The government is also proposing ‘promoter action notices’, which would be issued to banks, employment agencies, and advertisers who have provided services to anyone in receipt of a universal stop notice.

More useful articles for small business owners 

• IR35 crackdown on umbrella companies
• What is HMRC Time to Pay?
• Rules for tax on cryptocurrency
• HMRC Self Assessment penalties