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Tax cheats (£34-120bn) cost far more than benefits cheats (£1+ bn) – yet far fewer are prosecuted

hmrcAnalysis of HMRC data shows that the political culture is sympathetic to tax avoiders

Summary of an article by Prem Sikka, professor of accounting at the University of Essex, which may be read in full here, adding official data confirming the thoughts of John Wight

Social security benefits come in many shapes, including the state pension, pension credits, income support, disability living allowance, employment and support allowance, jobseeker’s allowances and housing benefits.

  • The total cost of all benefits for 2013-14 is about £164 billion.
  • Around £1.2 billion or 0.7 per cent of the total is attributed to fraud. ‘
  • Benefit fraud has continued to average between 0.6 per cent and 0.8 per cent for the period 2005/06 to 20013/14.

The government has set up a benefit fraud hotline and people are encouraged the blow the whistle on their neighbours and anyone else suspected of fraud. The sanctions:

  • a £50 spot fine, without a court order, on individuals who mistakenly provide inaccurate information on their claims forms.
  • Those suspected of fraud may be able to pay fines of between £350 and £2,000 in lieu for prosecution. From April 2015, the upper limit of the fine will be £5,000.
  • Some may lose their benefits altogether for a fixed period.
  • Private debt collection firms, bailiffs and forced house sales are used to collect penalties.
  • Suspects can be charged under the Fraud Act 2006, which carries a maximum prison sentence of up to 10 years.

The data shows that most of the criminal convictions are for frauds of less than £10,000. In 2011, two-thirds of fines imposed were for £200 or less. The largest fine imposed was £5,000. For the period 2008-2012, some 1,306 offenders received a prison sentence.

Benefit fraud is officially estimated to cost £1.2 billion (2013-2014) but HMRC estimates an annual tax gap – that is tax avoidance, tax evasion and monies of £34 billion (2012-13).

HMRC’s model is challenged by others who put the tax gap at around £120 billion.

Even in 2004, a former World Bank adviser was saying that the UK is losing over £100 billion a year to tax avoidance and evasion. HMRC’s 2013-14 report states that during the year 421 individuals were detained after arrest by HMRC officers, but none were charged.

Preliminary conclusions

The amounts attributed by the government to tax avoidance and evasion are much larger than the amounts attributed to benefit fraud. But the number of prosecutions and convictions for benefit fraud are much greater.

The political culture is more sympathetic to tax avoiders. HMRC was made aware of the HSBC tax frauds in 2008, but so far only one person has been charged. An excuse offered by HMRC is that it likes to make financial recoveries and thus does not go for prosecutions.

The revolving door swings and tax avoiders go scot-free

Vodafone cio to HMRCWe add that in 2013, just as the Treasury was under pressure to review rules allowing Vodafone to avoid paying tax on its massive £84bn windfall from selling its stake in the American mobile phone giant Verizon, HMRC appointed Mark Dearnley, CIO at Vodafone, as its new Chief Digital and Information Officer.

Sikka points out that, on a number of occasions, the courts have declared some of the tax avoidance schemes to be unlawful. This has not been followed-up by any investigation or even recovery of the cost of fighting the schemes. Big accountancy firms are often the brains behind the schemes but no firm or partner has ever been fined even after the schemes have been declared unlawful.

  • The same firms are given taxpayer-funded contracts, such as those relating to privatisation and Private Finance Initiative (PFI).
  • Their partners advise HM Treasury and other government departments.
  • The firms fund political parties and also provide jobs for former and potential ministers.

In April 2013, the government introduced rules to ban companies and individuals who took part in failed tax avoidance schemes from being awarded government contracts. So far, no such business has been barred.

Government ‘sweetheart’ tax deals and yet another revolving door reward for failure

Yeah, we’re all in this together? 

So said the reader who recommended the Guardian article by Rajeev Syal which reveals the scale of the government’s “sweetheart” tax deals – individual secret agreements drawn up between tax officials and corporations to settle disputes.

Another whistleblower revelation

A leaked document sent by Dave Hartnett, the former head of tax at HM Revenue and Customs (HMRC), to David Gauke, the exchequer secretary at the Treasury, discloses a figure of £4.5bn for four settlements.

Conflict of interest: the government’s civil servant too close to the corporate world

dave hartnettTwo years ago the Telegraph and others reported that Dave Hartnett, during his service as ‘permanent secretary for tax’ at HM Revenue & Customs, was entertained 107 times by some of the UK’s biggest banks.

These included law firms and accountancy firms and other corporates, amongst them, Goldman Sachs, JP Morgan, Ernst & Young, KPMG, PriceWaterhouse Coopers and Deloitte.

Revolving door

In January he was hired by HSBC to help to enforce the highest standards in dealing with international money transfers.

The leaked document describes deals in excess of £1bn as “not uncommon”.

The disclosures about the multibillion-pound scale of the government’s deals come from a seven-page memo sent by Hartnett in December 2011 as he asked for public support from Gauke in the face of growing criticism in the media and parliament.

Margaret Hodge, the chair of the Commons public accounts committee, said: “If we got £4.5bn in, how much did we not get? That is what taxpayers will want to know, and I’ll be raising this with HMRC through the committee.

Whistleblower protected? No: treated like serious criminal

Separate documents disclosed in the Guardian show that tax officials used intrusive investigative powers designed to help them catch serious criminals to try to prove that the whistleblower who uncovered one of the first sweetheart deals, involving Goldman Sachs, had spoken to the Guardian.

Read more about HMRC’s draconian action against its whistleblower and deals with Vodafone and Goldman Sachs here: http://www.guardian.co.uk/politics/2013/apr/29/sweetheart-tax-deals