"We all have a legal duty to pay tax. If you don’t pay the tax you owe, you should go to jail. It’s that simple." - Adam Walkom, Co-Founder Permanent Wealth
Some wealth planners are expecting radical changes to the UK tax system in the next few years.
The Office for National Statistics has published a report, ‘Measuring tax gaps‘, noting that the tax gap amounted to £35bn, or 5.3% in the 2019/20 tax year. In the 2005/06 tax year, the tax gap was estimated to be 7.5%.
The gap over the past 15 years has on average been around the £30bn mark, according to Scott Gallacher of Leicester-based financial planner Rowley Turton.
“Closing the £35 billion tax gap is one of those supposed easy wins for the Government, like achieving ‘efficiency savings’, ” said Gallacher.
“Every government claims that they can make things better by closing the tax gap or achieving efficiency savings. However, the tax gap has averaged around £30 billion for the past 15 years so I don’t think it’s going to be closed completely any time soon. Perhaps most the interesting thing in the figures was “Legal interpretation” costing £5.8 billion,” said the financial planner specialist.
“Another way of reading this could be that Financial Advisers, Solicitors and Accountants save their clients £5.8 billion in unnecessary tax. Both are true, it just depends on which side of the fence you are sat, and our job is to be sat on the side of the client,” said Gallacher.
Adam Walkom, Co-founder at Permanent Wealth Partners says the drop in the tax gap figures show HMRC is heading in the right direction.
“After all, we all have a legal duty to pay tax. If you don’t pay the tax you owe, you should go to jail. It’s that simple.”
Adam Walkom, Co-founder at Permanent Wealth Partners
Walkom also sees structuring your financial affairs in legal tax-efficient ways as something that not enough people take advantage of.
“We also have the opportunity to structure our financial affairs, in 100% legal ways, which minimises the legal amount of tax we have to pay. I am constantly amazed at the number of people who don’t do this. If Governments want us to pay more tax, they should change the law, not try to persuade us with a moral obligation,” said Walkom.
John Humphreys, Head of Sales at trust-based wealth preservation planning and management business WAY Group also sees the decrease in the tax gap as a move in the right direction for the HMRC when it comes to retrieving more tax payments.
“This clearly shows HMRC are heading in the right direction and collecting more of the tax that is owed,” said Humphreys.
“The financial impact of the Covid-19 pandemic on Government finances will only drive the need to close this gap further, along with other measures to increase tax receipts such as the recently announced National Insurance increase to fund social care,” he said.
The Covid-19 pandemic has clearly ‘moved the goalposts’ so I anticipate significant, possibly radical changes to the UK tax system in the next few years.”
John Humphreys, WAY Group
One way that HMRC could close the gap is to clamp down on dubious umbrella companies that skim and overchange National Insurance on contractor payslips, as mentioned in this ITPro podcast.
The Freelance Informer has reported that the UK government is giving the nation’s tax authority, the HMRC, more legislative powers to clamp down on promoters of tax avoidance schemes, according to the Institute of Chartered Accountants in England and Wales (ICAEW).
The four new measures will enable HMRC to :
- seek freezing orders to prevent promoters from hiding assets;
- name promoters and publish details of how they promote tax avoidance;
- issue additional penalties to UK entities facilitating promotion of tax avoidance by offshore promoters;
- present winding-up petitions for companies operating against the public interest.
To read the story in full here.
