The taxman gets tough

Are you paying all the tax you legally should? Check – because if you don’t, someone else will. Earlier this year we heard about HMRC’s Connect supercomputer, which draws on a vast range of corporate and state sources (social media, credit-card transactions, land registry transaction data) to figure out how much you should be paying and compare it with how much you actually do.

Meanwhile, staffing in the tax office’s Affluent Unit – which investigates the tax affairs of UK residents with an annual income of over £150,000, or a net worth of £1m – has risen by 20% over the last year. It is doing a good job (relative to its remit at least): the take from what accountants call “middle England’s taxpayers” rose by £438m last year.

HMRC is also going after small firms: in the year to March 2016 it took an extra £468m from them as a result of investigations. You can expect to see more of this, says Accountancy Age, given that HMRC has near-exhausted the possible extra yield from big firms. There are two things to take from this. Firstly, it’s a reminder that, while we don’t hear as much about it as we used to, the UK government is still broke.

Our national debt is around 80% of GDP (or £1.5trn). Add in unfunded pensions and the like and it is more like 191% of GDP (£3.5trn). And we add to it every day. As the Institute for Fiscal Studies said last week, seven years into our attempts to cut our budget deficit, we still have the fourth-largest (relative to GDP) of all 28 advanced economies.

Secondly, there still seems to be some belief in government that this situation can be resolved as long as someone somewhere can be forced to pay more tax. And if you use the self-assessment system, run a small business, have ever used a tax-avoidance scheme, own lots of property, have multiple sources of income, or if you – for whatever reason, legal or not – pay a low-looking tax rate on a high-looking income, that someone is very probably going to be you.

So what can you do? The obvious answer is to keep your affairs as simple as possible (creating complication is a great way to trigger an investigation). But beyond that, note that the current situation can’t last forever. It’s possible that with some changes to the tax system and huge reform of the welfare state, the UK might be able to run a roughly balanced budget most years. But the £1.5trn in debt? Not a hope.

You can’t get rid of that by hiring more inspectors to terrorise taxpayers for a few extra thousands of pounds. It is more serious than that. History shows that the only way to get rid of it is to default on it – which one way or another means creating inflation (now rising almost everywhere in the world). That’s why every time I read about HMRC stepping up a campaign against one group or other to boost the tax take, I think about buying a little more gold.

Merryn

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