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Ian Cowie

Ian Cowie joined The Daily Telegraph in 1986 and has been personal finance editor since 1989. He is @iancowie on Twitter.

HMRC targets middle class tax evaders

By Ian Cowie Your Money Last updated: December 17th, 2010

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HM Revenue and Customs may try to squeeze more tax out of the middle class (Photo: Alamy)

Accountants claim HM Revenue & Customs (HMRC) aims to extract even more tax from the squeezed middle class with a drive to tackle evasion, such as failure to declare buy to let and other second incomes.

A spokesman for HMRC said it is spending £900m training an extra 200 criminal investigators and hopes to prosecute five times more people for tax evasion by 2014. He added: “People caught deliberately understating their tax will have their names published if the tax lost exceeds £25,000.”

David Rothenberg of accountants Blick Rothenberg commented: “This middle class squeeze is an intensification of a long term drive to identify and deter evasion. HMRC has targeted so-called ‘ash cash’ or payments to doctors for signing death certificates before bodies can be cremated and also undeclared cash payments to dentists.

“Inspectors often find newsagents’ windows a productive source of additional revenue from people who have rooms to let or offer other services in return for cash payments they fail to declare for tax.

“It could even be argued that agreeing to pay your builder in cash might be seen as a conspiracy to defraud the Revenue but it would be very difficult to prove the householder was at fault. Of course people should pay their taxes – that nice man sitting next to you in the pub or restaurant might be a tax inspector.”

Mike Warburton of accountants Grant Thornton said: “HMRC are keen to prosecute more people and will make an example of some professionals who should have known better. For example, I know a former chief executive of a substantial financial institution who is currently under investigation for tax evasion.

“Inspectors are targetting accountants, lawyers, judges and MPs. HMRC is keen to demonstrate that everybody who fails to pay their proper tax is in the firing line – and they are not just cracking down on benefit cheats.

“The greatest burden is likely to fall on the middle classes because there are more of them than the very wealthy. While only 327,000 people earn more than £150,000 a year, there are 2.7m paid more than £50,000.”

HMRC denied that it is picking on the middle classes and emphasised that nobody has anything to fear if they have been honest. A spokesman added: “There will be strong safeguards for taxpayers under investigation and tightly defined criteria set out in law.

“Everyone has the chance to avoid being named if, within the time allowed, they tell HMRC everything that is wrong.”

Richard Mannion, a director at Smith & Williamson, pointed out that middle class families are already paying more tax than they did under the last Conservative Prime Minister. After taking account of National Insurance Contributions (NICs), income tax, Value Added Tax (VAT) and various duties on fuel, alcohol and tobacco, HMRC now takes 36 per cent of their earnings – or 49 per cent in the year they buy a typical home.

He said: “We know that the rates of NICs and VAT are to go up next year, so taxpayers will undoubtedly be giving more to the government.

“Anyone who steps out of line in future, could face very severe penalties as we see the tax crackdown gathering speed. From the taxman’s point of view, naming and shaming of people who contravene the rules is cheap and effective advertising.”

David Kilshaw of KPMG added: “It is going to be a cold Christmas for middle England and in the New Year everybody will have to work harder for less. HMRC will be out in force and determined to continue their crackown on tax avoidance and evasion.”