Press Release - Tackling the hidden economy
3 April 2008
HM Revenue & Customs achieved a return of around £4.50 for
every £1 spent on tackling the hidden economy in 2006-07 and recent
campaigns to encourage people into the formal economy have achieved
much higher returns.
But, according to the National Audit Office, the penalties the
Department imposes when it detects people in the hidden economy are
relatively low and it obtained little publicity for
prosecutions.
The Department spends £41 million a year on tackling the hidden
economy. Today’s report found that the Department compares well in
many areas with other tax authorities. Its advertising campaigns
have resulted in an additional 8,000 people registering to pay tax
and it estimates that they will pay tax of around £38 million over
the next three years.
The Department has also encouraged people to come forward
voluntarily to pay tax owed using its Offshore Disclosure
arrangements, making use of information obtained on around 400,000
overseas bank accounts held by UK residents. Around 45,000 people
came forward in 2007, bringing in £400 million in additional tax at
a cost of £6 million.
The number of cases detected through formal investigations by
the Department was 28,300 in 2006-07, 12 per cent lower than in
2003-04. At the same time, the overall amount of tax detected
increased by 13 per cent in real terms to £145 million.
The Department can impose a penalty of up to 100 per cent of tax
due but in most cases the penalty is much lower. There were around
70 prosecutions in 2006-07. The Department did not secure much
publicity on these cases, reducing the wider deterrent effect.
Among its recommendations, the NAO says that the Department
should make more use of advertising to inform people of the
benefits of working in the formal economy and change public
attitudes to help reduce demand for hidden economy work. It should
also develop further schemes to encourage widespread voluntary
disclosure by people who owe tax.
Tim Burr, head of the National Audit Office, said
today:
"HM Revenue & Customs has experimented with new ways of
encouraging people into the formal economy and it is managing to
detect more unpaid tax. It could make better use of penalties and
secure greater publicity for prosecutions to discourage people from
operating in the hidden economy. With well over £1 billion in
unpaid tax each year, it is important that the Department becomes
more effective in tackling the problem."
Notes for Editors:
- The hidden economy is usually taken to mean any undeclared
economic activity. Definitions vary, but it can range from casual
moonlighting, work paid cash in hand, fraudulently claiming welfare
benefits, through to tax evasion and organised crime.
- HM Revenue & Customs set up the Offshore Disclosure
arrangements in April 2007 following landmark rulings against a
variety of major financial institutions where it obtained details
of UK resident offshore bank account holders. The arrangements
encouraged people to come forward voluntarily, disclose and pay
their outstanding tax. The taxpayer needed to notify the Department
by 22 June 2007 of their intention to make a disclosure under the
arrangements.
- Press notices and reports are available from the date of
publication on the NAO website, which is at www.nao.org.uk. Hard
copies can be obtained from The Stationery Office on 0845 702
3474.
- The Comptroller and Auditor General, Tim Burr, is the head of
the National Audit Office which employs some 850 staff. He and the
NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 20/08
All enquiries to Donna Watson, NAO Press Office: Tel: 020 7798
7038
Mobile: 07917 555 388