Staying on good terms with your ex-wife might just be beneficial when it comes to dealing with the tax man.
Informants get paid by the HMRC & The IRS!
HMRC payments to ‘informants’ in 2017 was some £343,000, down from a peak of £605,000 in 2015, but still a potential ethical challenge according to City law firm Reynolds Porter Chamberlain LLP (RPC).
According to RPC, what is particularly noticeable is that former spouses are at the top of the list as informants.
Information and documents provided by disgruntled divorcees and ex-employees often provide a starting point for tax evasion investigations by HMRC.
Interestingly, the taxmen do not advertise the fact that they will pay for information because many ex-spouses are happy to provide it for free. HMRC clearly consider it prudent only to pay when they really have to. This seems at least a little two-faced, when one considers the government and HMRC’s public attacks on the ‘immoral’ use of legitimate but aggressive tax avoidance by tax-payers trying to only pay when they have to.
HMRC is not the only tax office to use informers. The Internal Revenue Service (IRS) in the USA has a well-established policy of paying informers up to 30% of the additional tax, penalty and other amounts it collects. A tax partner at RPC has suggested that HMRC may go down the route taken by the IRS and make all informants’ payments public. Whilst that approach may be more transparent and demonstrate a greater level of ‘public accountability’, it could significantly increase animosity between ex-spouses, some of whom can be quite venomous anyway.
Adam Craggs, tax partner at RPC, said: ‘HMRC appear to be willing to utilise any information that they receive, irrespective of its provenance, as they did when they received stolen data from HSBC Suisse. It seems that as long as the data may increase the tax yield, HMRC will utilise it’. ‘Concerns have been raised that paying informants for intelligence on tax evasion might appear to legitimise data theft, raising both legal and ethical issues.’
But that is not the only way they can catch you...
There are plenty of other ways for the taxman to increase his tax revenue too...
In 2010, HMRC spent £45million on a new ‘supercomputer’ from BAE Systems. It uses a mathematical technique known as ‘social network analysis’ which is able to search apparently disconnected pieces of information to find less obvious networks and connections between people, companies, properties, banks etc.
This automatic analysis would have taken months, if it was possible at all in the past, and according to the National Audit Office, had generated some £1.4billion in otherwise unpaid tax by mid 2011.
HMRC now has access to third party information such as the Land Registry, electoral role and the Driver & Vehicle Licencing Authority (DVLA) records. This means that an expat with 3 or 4 properties, but with no declared rental income is more likely than ever to be noticed, and a UK resident declaring £25,000pa in income, but with a Ferrari and a Bentley on the drive can expect to be investigated.
The more avid social networkers are also likely to be spotted. Facebook and Twitter entries showing off extravagant holidays, expensive cars or other ‘bling’ can perk HMRC enthusiasm for investigation. Even notices about large weddings in local newspapers are fair game, if the family is reporting only nominal income.
It has been reported that several individuals seen in Channel 4’s ‘My Big Fat Gypsy Wedding’ were pursued for spending undeclared earnings on lavish weddings!
The warning is very clear- use approved exemptions, allowances, trusts, and tax-efficient products to mitigate tax, but do not expect to successfully evade tax. Be aware of the damage ex-partners or ex-employees can do simply by calling a hotline number!
And it doesn’t end there - in the unlikely event that your wife has a speech impediment, is hard of hearing or can only speak Welsh, HMRC are more than happy to accommodate - Welsh language, braille and textphone services are all available!
The HMRC are getting aggressive...
Accountancy firms have noted that HMRC has faced criticism recently for a range of more aggressive tactics they are using to increase tax take. These include:
Direct Access to Bank Accounts: HMRC now has direct access to taxpayers' bank accounts which means that in certain circumstances it can take money directly from a taxpayer's bank account;
Accelerated Payment Notices (APNs): HMRC can demand tax that it believes is owed to be paid within 90 days, without having to first establish that tax is liable before a Tax Tribunal or court and there is no right of appeal;
Private Sector Debt Collectors: HMRC is increasing its spend on outsourcing to private sector debt collectors, who often adopt aggressive methods of tax collection;
Social Media: HMRC inspectors now trawl through social media traffic for individuals boasting an extravagant lifestyle that is inconsistent with their declared income.
For more information on this subject please do not hesitate to contact me.