HMRC have released its annual report ‘Use of marketed tax avoidance schemes in the UK (2020 to 2021)' which provides an update on what they know about the tax avoidance market. It shows a decline in participation in tax avoidance schemes compared to 2019-20.
HMRC estimate that during 2020-21 around £1.2 billion was lost to tax avoidance, a decrease of 20% on the previous year. There was an estimated £30.4 billion of additional tax collected from tackling avoidance, evasion, and other non-compliance which is a 17% reduction compared to 2019-20.
The report identifies that the largest contributing reason for tax being unpaid is a failure to take reasonable care (19% of the total) followed closely by criminal attacks, non-payment, and evasion which together make up 46% of the total unpaid tax. Tax avoidance makes up just 4% of this total.
- About £0.4 billion of lost tax in 2020-21 came from marketed avoidance schemes sold to individuals, a 20% reduction from the previous year.
- The number of individuals using avoidance schemes peaked in 2017-18 at 41,000 falling to 31,000 in 2020-21.
- As for 2019-20 Disguised Remuneration (DR) avoidance schemes made up 99% of schemes used by individuals.
- The majority of scheme users were between the ages of 41 and 50 with 90% reporting an income of less than £50,000 a year.
- Whereas in the past the majority of scheme users lived in London and the South East there has been a shift with the highest numbers now living in Tamworth, and in Nuneaton and Bedworth in the West Midlands.
- Hospital workers and bookkeepers continue to be the prevalent tax scheme users.
- HMRC estimates that there are still 70 to 80 umbrella companies operating that are non-compliant and involved in operating DR avoidance schemes.
The report highlights that as of 30 September 2022 HMRC had:
- Successfully challenged fourteen schemes in the tribunals on the grounds of failure to notify under the DOTAS regime, a 55% increase on the previous year.
- Used powers under Finance Act 2021 which allow HMRC to issue Scheme Reference Numbers (SRN) for arrangements that they reasonably suspect should have been disclosed to issue SRNs for 19 schemes.
Since March 2021 HMRC have made 14 public interest misconduct disclosures, referring promoters to their professional bodies to consider whether they should be removed or disqualified.
They report that they are currently considering presenting a number of winding-up petitions to the court on public interest grounds for companies involved in or associated with the promotion of tax avoidance. HMRC also makes referrals to the Insolvency Service which considers whether disqualification proceedings are appropriate under the Company Directors Disqualification Act 1986.
Useful guides on this topic
Disguised remuneration loan charge
What is disguised remuneration? What is the loan charge? When does the loan charge apply? Will the loan charge affect me?
Promoters of Tax Avoidance Schemes (POTAS)
Who is a Promoter? What are the Promoters of Tax Avoidance Scheme rules? What does this mean for promoters, intermediaries and clients?
DOTAS: Disclosure of Tax Avoidance Schemes
What are the Disclosure of tax avoidance schemes (DOTAS) rules? When should you disclose your use of a tax avoidance scheme? What are the consequences of non-disclosure? How are penalties calculated?
Joint & Several Liability of Company Directors etc
When can Company Directors or LLP Members become jointly and severally liable for company or LLP tax liabilities and penalties? Finance Act 2020 has provided HMRC with wide-ranging new powers. What are the conditions and what are the rights of appeal?
General Anti-Abuse Rule (GAAR) (subscriber)
This guide looks at the key features of the General Anti-Abuse Rule (GAAR) contained within the Finance Act 2013, what areas of tax it covers and what you need to know about the provisions it contains when considering tax planning.