Before work is started on this, I encourage HMRC and the government to give consideration to the points I raised in a blog at the time of the last Budget, about the possibility that the registration threshold is, in any case, too high. I will not repeat the reasons for that view since they are covered in that blog already (http://www.haysmacintyre.com/blog/Post-Budget-VAT-Musings.aspx). However, there is nothing in the registration threshold rules that suggests they exist to reduce burdens on business. Had that been the case then the registration threshold would have been structured to achieve that end. It would have required registration of big businesses most of whose activities are exempt or outside the UK scope, but which have relatively minor taxable activity. The thresholds are more likely to be driven by the possibility that the traders below that level of taxable activity are not cost effective to control given the scale of likely revenues. Of course, government efficiency is a factor, but it is far from satisfactory to create a class exemption in order not to have to police a segment of society, but then expect everyone who happens to be on the wrong side of the line (possibly by not very much) to blithely pay taxes to which their near neighbour is not subject. Therefore, as a part of the review of VAT registration cheats, a cold hard look should be given at the positioning of the thresholds themselves.

 

I have occasionally heard, over my career, of examples where a person who is paying VAT is finding that they are being undercut by competitors to unimaginable degrees. They tell me that they will surely go out of business if they cannot match these “efficiencies”. But having worried and agonised over the issue as to how their competitors can make such a cheap offering, they conclude that it must be evasion, or clever avoidance, of VAT. They usually do not have concrete evidence. VAT, however, is the obvious “smoking gun”. They face a dilemma. It is a serious matter to approach HMRC with something akin to an accusation against a competitor. It can cause reprisals, even legal action, if it all goes wrong. HMRC accepts such information on a confidential basis, but the stakes still appear high. What if the officer who deals with it is indiscrete? What if the business is investigated and infers the identity of the informant by a process of elimination? Having considered all of these issues, some taxpayers summon their courage and make a disclosure.

 

But the general feeling is that HMRC just tells the informant to leave it to them to deal with. After that, often, nothing seems to happen. The informant has sweated over taking the step, but the information might as well have vanished into a black hole. It is often felt that HMRC will only take action on a resource or profit led set of criteria. 

 

This impression is reinforced, tacitly, by the facility advertised on the HMRC website called “Reporting Tax Evasion” (http://www.hmrc.gov.uk/tax-evasion/). At first reading, this facility appears adequate, but it fails to hit the mark in several ways. First, it makes no commitment to telling the informant how their information has been used or has helped. In fact it says the opposite, whilst trying to reassure informants that the information is always useful. That means that the informant has no feedback loop and this will reduce his confidence in providing information. I can see the legal problems here, but it is something which needs to be reconsidered. Second, it implies that the informant has to be sure, or almost sure, that the reported person is definitely evading tax. That is a high hurdle. It should be clarified that reporting of situations where the reported person may be evading tax, but may also have mistakenly failed to pay it, and may even have a good reason for their commercial advantage, will not be frowned upon unless of course there is evidence of malicious intent. This will put the informant in doubt as to the degree of certainty needed before reporting. Third, confidentiality of the information is not even mentioned on the front page. Fourth, informants are asked to give as much information as possible, which sounds fine until you consider that informants might have preferred to be told that they will be allowed to give as much or as little as they like without getting dragged into more questioning than they feel comfortable about. It also implies an information threshold below which no action will be taken, which, again, seems reasonable until you consider how that approach might play with an informant. Indeed, the site has a hefty form to be completed by the informant. This in itself will be off putting, since those who have a natural aversion to forms will be likely to think that their information will not be used unless they complete one. Finally, the reference to stopping “fraudulent” and “criminal” activity is not well judged. Most informants will not view the position as strongly as these words suggest (to the lay reader). Cheats or spivs are one thing; criminals and fraudsters seem a class apart.

 

Taking action to ensure that honest traders who are floundering against unfair competition are supported as the pillars of society that they really are has not in the past appeared sufficiently high on the agenda. Most such people soldier on, or go out of businesses. But when the stakes are high, the temptation to treat the black market as “Rome” and do as the Romans do must be huge. Using twilight techniques to veneer the position with a layer of apparent respectability may help salve consciences. This is not a situation that ought to be encouraged.

 

So, if the announcement of action in this area is going to break through that credibility barrier it has to be spelt out that action is taken against cheats because they are cheats, and not because it makes money for HMRC. If it does the latter, all well and good. If it does not, then so be it. 

 

There should not be any compromise over that position.