The taxman gets tough
Having near-exhausted the extra yield from big firms, the taxman is going after individuals, says Merryn Somerset Web. Here's what you can do about it.
Are you paying allthe 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.
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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.
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Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
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