Insights

In the 2023 spring budget Jeremy Hunt announced plans to introduce tougher penalties for people found guilty of tax fraud. This would include those who promote tax avoidance schemes marketed as ‘investments’.

The threat of tougher penalties is also being used as a warning to freelance workers who are using intermediary and umbrella schemes to circumvent IR35 restrictions. According to the Financial Times, the UK loses around £400m a year in tax revenues from contractors, freelancers and temporary workers, including nurses and cleaning staff. In some cases, the workers are not aware of their tax responsibilities under IR35; they have entrusted umbrella agencies to handle payroll on their behalf. Hospital workers are apparently among the worst offenders – usually without realising.

The current prison sentence for the worst cases of tax evasion and fraud is seven years, and the government wants to double it. They also want to introduce prison sentences for people who are promoting tax avoidance; currently this does not necessarily attract a custodial sentence for operators.

Fraud has been in the news recently in connection with tax, as details emerge of the extent to which the Bounce Bank Loan Scheme offered during the Covid pandemic was abused. There are stories of people taking out loans and using the money to build home extensions or buy expensive cars. In addition, there are reports that the R&D tax credits scheme is being abused, all of which costs the Treasury billions. Measures have already been taken to tighten up the rules for R&D tax credits, which is extremely unfortunate for all the companies making responsible claims.

In addition to tougher custodial sentences, the government wants to devote over £40m to giving HMRC increased capabilities to collect tax debts. This does not apparently mean that taxpayers who are facing genuine financial difficulties will not be treated with understanding. The Time to Pay Scheme will continue as before, but HMRC will also become more focused on distinguishing between the two scenarios – real hardship and deliberate avoidance.

This information is extremely relevant to employers because since 2017, all employers have a legal obligation to ensure they are following ‘reasonable procedures’ to prevent tax fraud.

In addition, as we have explained in our other article about the changes to tax taking effect from April 2023, the extra complexity these new rules create means some companies will inevitably make inadvertent errors, which will leave them at risk of a tax enquiry. It remains the case that making a voluntary disclosure is the best option in cases of tax underpayment or where an error is detected.

If you are concerned you may have paid too little tax or made errors on tax returns, we always recommend speaking with a tax professional before you talk to HMRC. If you wish to discuss this further, please email us via partners@rjp.co.uk.