For some time now the self-employed “ghosts” of the tax system, failing routinely to declare their private income and pay tax on it, are being pursued by the HMRC in a massive clampdown campaign on tax evasion. Tax evasion in this way finds private tutors, fitness coaches, horse riding instructors and music teachers to be the latest target by HMRC. Additionally, many of those guilty of this fraudulent activity are those who pay tax on a main job but fail to do so for their secondary, part-time job. For example, this might be a teacher who teaches private lessons in the holidays, but while paying tax on their permanent term-time job fails to do so with this latter holiday time top-up.
And it is good news for HMRC because the tax gap is contracting. HMRC claim that a further £4bn of the ‘lost’ tax had been recovered so far, due to their latest tactics. One of these involves using high-tech software to scan the internet, and e-mails, to find those individuals who might be liable to pay up.
So far, other professionals such as doctors and plumbers have been targeted and some have confessed and settled their dues. Others are now the subject of direct investigation. HMRC claim that the UK tax gap for 2009-10 had fallen to £35bn revised down from £42bn from 2008-09. These figures are of course estimates by their nature but it’s worth noting that a whopping £1.8bn of this ‘lost’ tax was attributed to these bespoke “ghosts” of the system who are earning in secret.
Tax evasion is wrong and should be attacked. However a more efficient way of raising the necessary money to lessen the tax gap would be to scrap the 50% tax rate as this encourages high-earners (with the time and expertise) to devise complex tax structures to avoid paying the higher rate of income tax or to attack UK based multi nationals structuring their affairs so more of their profits are taxed abroad where the tax is lower. Why doesn’t HMRC do both rather than just pick on the easy targets?