James Charles
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Higher-rate taxpayers and those who are self-employed face a greater risk of a tax investigation, as the Revenue deploys tougher tactics to fill a £7 billion black hole in Treasury coffers.
Simple mistakes in tax returns, big changes in income or expenses from last year or big purchases risk triggering an inquiry by Revenue investigators, tax experts told The Times.
Buy-to-let property investors, wealthy individuals, savers with offshore or foreign accounts and self-employed people who have had a drop in turnover are most at risk, accountants said.
The financial details of partners in law firms or medical practices are expected to be examined closely. Barristers are also under the spotlight because the taxman thinks that they may have been fiddling expenses, including the costs of cleaning gowns and wigs.
Under new guidelines a rise in expenses of 10 per cent year-on-year could prompt a tax investigation, compared with the previous threshold of a 20 per cent variation.
More than a million buy-to-let landlords, who have been battered by the devastating collapse in property values in the last year, face further headaches as investigators examine their tax returns.
Tax experts warn that the Revenue's recently updated computer systems are red-flagging anything out of the ordinary in the search for evidence of tax evasion.
The taxman has the power to investigate any one of the millions of self-assessment returns it receives each year.
Last year the Revenue looked into the affairs of more than 62,100 individuals, but this year that number is expected to soar.
If it uncovers a mistake, taxpayers could face a hefty penalty. In rare cases where the Revenue proves that a taxpayer knowingly committed fraud, it has the power to prosecute.
The Government is facing a £23 billion shortfall in tax receipts as the economy slides into recession - the first decline in annual tax receipts year-on-year for more than a decade. Accountants say this has coincided with a more aggressive approach from Revenue & Customs, focusing on more than nine million taxpayers due to submit a self-assessment return by the end of this month.
Mike Warburton, of the accountants Grant Thornton, said: “The Government is short of money. HMRC is under growing pressure to boost tax take and it is already doing that by launching more investigations.”
Every year the authorities target groups that they think are routinely flouting the rules. In the past, builders and eBay traders have faced special scrutiny. Anita Monteith, a tax manager at the Institute of Chartered Accountants in England and Wales, said: “If you have switched bank accounts in the last year or made a big purchase, such as a holiday home, you could flash red in the Revenue's eyes and become subject to costly and time-consuming tax investigation.”
While putting greater pressure on HMRC to increase the taxes it collects, the Government has also cut staff numbers, leading the Revenue to take more creative or desperate steps to recover lost income. Last year the Revenue admitted that it paid £100,000 for the personal banking records of up to 100 Britons that had been stolen from a Liechtenstein bank.
HMRC argues that it uses risk-based assessments to target taxpayers whom it suspects are committing fraud.
However, tax experts warned that an increasingly desperate Revenue would drag more innocent taxpayers into lengthy investigations.
John Whiting, of the Chartered Institute of Taxation, said: “It is inevitable that there is more pressure on the Revenue to raise the amount of cash it collects for the Government.”
In the Pre-Budget Report last month the Treasury had dramatically to reduce the amount it was forecast to receive from tax this year, from £470 billion to £447billion. In 2007-08 it collected £451 billion.
The Treasury has forecast that gross domestic product will fall in the first half of this year before rising again in the last six months.
However, Citigroup, the American bank, believes that Britain's economy will shrink by 2.5 per cent this year - the biggest fall in 60 years.
Self-assessment forms submitted this month relate to the 2007-08 financial year, which ended in April, but tax experts say that the Government could use the extra cash it collects to balance the books for the current year.
Tax return do's and don'ts
DO file your tax return by January 31, or you face the threat of a £100 fine. Last year, nearly 900,000 taxpayers were fined for filing late.
DO register quickly for the Revenue's online service if you have never filed on the web before. The deadline for submitting a paper self-assessment form was October 31, so the only way to file now is online. Visit hmrc.gov.uk and click on “self-assessment”. The Revenue should send you an activation PIN within five working days.
DO offset expenses to cut your tax bill. It is surprising what you can claim. Mike Warburton, of Grant Thornton, the accountant, said: “I had a client who ran a consultancy from home and was able to claim 50 per cent of the cost of employing a gardener. They argued that the success of the business depended on them keeping their gardens in trim.”
DO double-check your form for any errors. The trigger for most investigations is a discrepancy on a form.
DON'T leave it until the last minute to file your return. The Revenue has warned that the days leading up to January 31 are likely to be very busy, raising the chances of the online system slowing down or even crashing. Last year, a record 204,000 taxpayers submitted online returns on January 31.
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They might have more success checking the prices at which properties have been inherited to avoid IHT. I know of one now that was valued aqt £150k when everything on the street was selling at £500k. Now for sale at £600k. Avoiding IHT and CGT. The owner moved there!
Michael, West Midlands,
HMRC has been losing billions of pounds a year due to "carousel" VAT fraud and yet very few of the people responsible have been arrested and jailed - it's a scandal. HMRC should divert resources to tackling these big high value frauds instead of wasting time on easy targets
Jennifer Moran, London, UK
Bully Boy Britain..
Terrify the public.....
What can they really do,, Imprison millions.
Get out while you still can..
Rick, Newcastle, UK
Yeah why not and if we can't pay you what you think we owe you, you could hang us or put our heads on spikes on a bridge in london to make a spectacle of people that tried to survive the wrath of having to live in the uk!
john, london,
Investigations no doubt ,will probably be of a high percentage of hard working individuals, who will be pressurised and at the same time incurring costly accountancy fees .We are experiencing a difficult time at present maintaining our heads above water without these bullying tactics.
brian Hill, west mids, uk
"Last year the Revenue admitted that it paid £100,000 for the personal banking records of up to 100 Britons that had been stolen from a Liechtenstein bank."
Come again? Surely this information should be treated as evidence unfairly obtained and would therefore be inadmissible in court.
Chris, Christchurch, NZ
So It's going to be unusual & hence worhy of investigation if you turnover decreases and your costs increase.
Obviously during the mother of all recessions, shortly after Gas & Electricity prices have soared exponentially this won't happen wil it ? MMMM
Steve, Cramlington, U.K.
Totally concur with PeterFieldman. I'd go further and say "flat tax". Possibly 24%, for every income earning adult. This would do away with tax avoidance schemes as it is fair. OK, less accountants but hey, hooray!? Everyone contributing the same percentage as is teneted in our Christian Bible.
George, London,
I think many of the buy to let speculators should be imprisoned and bankrupted. They have exploited first time buyers and vulnerable people. They are not business people, they don't generate wealth, they just exploit hard working people. I am pleased they are now in such financial trouble.
Thomas Howell, London, UK
Ways to increase tax revenues:
1: Eliminate tax havens as proposed by Barack Obama in his bill "Stop Tax Havens Abuse Act".
2: Outlaw all tax avoidance schemes and special regimes.
3: This would allow for a lower rate of tax for all at say 10%
simpler and thereby removing incentive to cheat
peterfieldman, paris, france
Last year HMRC sent eight £100 penalties that were an error that cost money to appeal all we received was a letter of apology - no compensation but if you make the simplest of errors it is a £100 every time, this is on top of 60 hour working weeks and fighting to find work in this climate.
Simon, maidenhead, berks
Atkin V Minors - how sweet your advice! Yes- this is war. Let us all stop cowering and stand up for justice and right. Let's have a tax strike to bring the useless government down.
David Mann, Chester, UK
HMRC should put its own house in order before "targetting" innocent taxpayers. Now a French resident and taxpayer, I have been struggling for months now to get proper coding on my UK based pension and to get back tax overpaid. HMRC generally does not use e-mail and takes weeks to reply to letters.
david, Ligneyrac, France
I just hope the taxman catches all these tax cheats and gets really tough with them.Loopholes for the rich and a high percentage of gross pay taxed for low income earners.
philip dunn, york, north yorkshire
HM Revenue and Customs is in the middle of getting rid of thousands of employees , just who is going to do all this investigative work ?
Mark, Hull,
Sounds as if taxi drivers have missed their calling......an MP.
ronnie, Bridego Bridge, Uk
Why mess around? just put up more speed cameras.
ronnie, Bridego Bridge, Uk
Just leave the pox ridden bankrupt corrupt country.... It's a joke place now,scroungers,serial single mothers and self interested politicos..
keith rogers, arapkoy, cyprus
What nice service the HMRC gives to the public, with their bully tactics. It's time that these mistaken prone oganizations are kept in better check
Colin A, Bath, uk
As retired people who have worked very hard and have enough (or did have) cash in the bank to live out our lives (30 years more?) one insistence is that the interest earned, now a pathetic 3% p a, must have a deduction made for the rate of inflation before being assessed for tax.
B J Deller, Marbella, Spain
Inland revenue could target the married Taxi drivers with children who work part-time and earn £60 abd claim working tax credit and child tax credit. Yet they work full- time and boast £1200 a week.
One of the IR checks is mileage/speedometer which can be altered to show low mileage.
Jim, Sheffield, UK
Further the sleazy accountant s are also in on the act as they offer to provide false wage slips and receipts.
Time for Inland revenue to plug the giant leaking holes in its system.
Can thousands of taxi drivers all be earning £60 per week?
Jim, Sheffield, UK
The banks were bailed out by the tax payer. What do you expect from this pathetic governemnt which is hell bent on bankrupting this country. The policy of reckless borrowing and making the nation suffer is enterring its final stages. Soon all of us will be jobless and there will be no taxpaayer.
farrukh, london, uk
Mr Brown could start chucking all the foreign prisoners out of the UK and all the undesirables out of the country and off benefits. Now that would save a few quid!!!
Mark, Leeds,
This is all nonsense and subterfuge by HMRC. The computers may flag them up but they have no staff to pursue them....so they bluff and hope it scares more into paying.
Chris Jones, London, UK
If you have switched bank accounts in the last year..."
That's a laugh. If you were unlucky enough to use a bank that went out of business due to this government's fecklessness, that selfsame government will suspect YOU of irregularities?
Tom Welsh, Basingstoke,
Last year the Revenue kindly allocated my wife's bank account to my name and accused me of evasion.......so much for their "system"
Robin, Ilford, UK
DO arm yourself to the teeth against state sponsored theft from the most immoral institution on the planet.
DO fight back against illegal retrospective re-interpretation of long standing tax law and practice at every opportunity.
DON'T give one iota of leeway to these goons, this is war!
Atkin V Minors, Swindon, UK
The poor old buy -to-let speculators are coining it in as long as you took tracker mortgages - I am happy to pay more tax prior to these interest rate drops,I was making moderate amounts before - now I am just coining it in. So thanks for your simpathy Denis but times are better than ever yesssss
Andy, Sunderland, England
Should they not ensure that their system does not crash and is able to cope with 204,000 or more who have every right to post their returns on the last day?
tris, Dundee, Scotland
DO's and DON'T's for the revenue.
DO look into MP's expenses.
DON'T assume that exenses they claim are non taxable.
Jb, Carcassonne, France
Oh dear, the poor old buy-to-let speculators. How sad.
denis, belfast, uk