An estimated £5.5 billion was lost due to tax evasion during 2022/23, according to a report published by the National Audit Office (NAO).

The NAO stated that ‘significant weaknesses’ in government systems have left the UK ‘too open’ to tax evasion. According to HMRC, 81% of the tax evasion came from small businesses.

HMRC said that, while the overall level of tax evasion has stabilised in recent years, it has increased amongst small businesses. Whilst HMRC has not estimated the scale of evasion by sector, it considers takeaways and sweet shops as high-risk retailers.

The NAO said that HMRC does not have a specific strategy to clamp down on tax evasion, and instead aims to stop overall levels of non-compliance increasing.

It also said that there has been too little emphasis on some widespread forms of tax evasion, such as electronic sales suppression (ESS) and abuse of the insolvency process to avoid paying tax debts, which is known as ‘phoenixism’.

Gareth Davies, Head of the NAO, said:

‘Although tax evasion has been growing among small businesses, HMRC has so far lacked an effective strategic response.

‘Its assessment of risks has given too little emphasis to widely used methods of evasion such as sales suppression and phoenixism. It has also failed to use new powers to tackle tax evasion.’

Internet link: NAO

Over half a million young people are yet to lay claim to Child Trust Funds worth an average of £2,212, HMRC has said.

Child Trust Funds are long term, tax-free savings accounts which were set up, with the government depositing £250, for every child born between 1 September 2002 and 2 January 2011.

Young people can take control of their Child Trust Fund at 16 and withdraw funds when they turn 18 and the account matures.

The savings are not held by the government but are held in banks, building societies or other saving providers. The money stays in the account until it’s withdrawn or re-invested.

If teenagers or their parents and guardians already know who their Child Trust Fund provider is, they can contact them directly. If they do not know where their account is, they can use the online tool on GOV.UK to find out their Child Trust Fund provider.

Angela MacDonald, HMRC’s Second Permanent Secretary and Deputy Chief Executive, said:

‘Thousands of Child Trust Fund accounts are sitting unclaimed – we want to reunite young people with their money and we’re making the process as simple as possible.

‘You don’t need to pay anyone to find your Child Trust Fund for you, locate yours today by searching ‘find your Child Trust Fund’ on GOV.UK.’

Internet link: GOV.UK

The government has announced a crackdown on late payments to small businesses and the self-employed.

Late payments cost SMEs £22,000 a year on average, according to Smart Data Foundry, while the Federation of Small Businesses says it leads to 50,000 business closures a year.

The government will consult on new laws that will hold larger firms to account and aim to get cash flowing back into businesses.

In addition, new legislation being brought in the coming weeks will require all large businesses to include payment reporting in their annual reports – putting the onus on them to provide clarity in their annual reports about how they treat small firms. This will mean company boards and international investors will be able to see how firms are operating.

Anna Leach, Chief Economist at the Institute of Directors (IoD), said:

‘For small businesses in particular, the time taken to pay an invoice matters. Companies that are paid swiftly can raise their productivity by spending more time on projects of economic value and less time chasing invoices.

‘We know from our research that there is a significant lack of awareness amongst businesses of the ability to check on the payment practices of large employers, and even fewer feel able to take enforcement action against their customers.

‘By ensuring that there is increased visibility of payment practices, reputational pressure will spur change in poorly performing firms, rather than smaller suppliers needing to try and negotiate in isolation.’

Internet link: GOV.UK IoD

The Chancellor should use her Autumn Budget to make off-payroll working rules ‘fairer and more effective’, according to the Association of Independent Professionals and the Self-Employed (IPSE).

IPSE says that the rules, commonly known as IR35, are still causing significant disruption for businesses and public bodies needing to recruit freelancers and contractors for their operations.

An IPSE survey of 1300 contractors in early 2024 found that 54% had walked away from an offer of work due to disagreements over the client’s IR35 determination.

It says the last government presided over a disastrous tightening of IR35 with the off-payroll working reforms. It is asking the new government to find a ‘fairer and more effective way for people to work as freelancers without being subject to endless challenges from their clients and the taxman’.

IPSE also called on HMRC to give taxpayers the support and the Chancellor to end the uncertainty over Managed Service Company legislation.

IPSE’s Fred Hick said:

‘For the first time since Spring 2010, a Labour Chancellor will deliver a Budget statement to the House of Commons. Government has so far painted a dour picture in the run up to the statement, with the Prime Minister warning that the Budget will be ‘painful’ – leading commentators to conclude that tax rises and spending cuts are on the way. But after a painful few years for the self-employed, we’re hoping government can spare some positivity for the sector.’

Internet link: IPSE

HMRC has ‘sent nudge’ letters to crypto investors who it suspects have failed to pay the correct tax on their gains, according to the Chartered Institute of Taxation (CIOT).

Many crypto investors are unaware of their tax obligations due to uncertainty over tax rules and limited understanding of the nature of crypto assets.

A chargeable disposal occurs when individual:

• Sells crypto assets for fiat currency.
• Exchanges one crypto asset for another.
• Uses crypto assets to buy goods or services.
• Gives away crypto assets to someone other than spouse or civil partner (in this instance, the individual is deemed to receive the value of the asset even if they do not actually receive anything).

Gary Ashford, Chair of the CIOT’s Crypto Assets Working Group, said:

‘Many investors may be unaware that profits from crypto assets are subject to income tax or Capital Gains Tax (CGT) like any other asset, depending on how they’re held.

‘If you receive a ‘nudge letter’ from HMRC, it’s important to take it seriously. Even those who don’t receive a letter should review their crypto activity and file a tax return or use the capital gains real time transaction service if necessary.

‘Sometimes tax can be due even where the investor does not think his or her investments have been profitable. Selling, lending or ‘staking’ crypto assets – or potentially even just transferring assets between crypto sites and portfolios – will usually trigger a disposal in the tax year in question.’

Internet links: CIOT