A taxing time for tax evaders!

by The Times 100 on Tuesday 26th February, 2008

A taxing time for tax evaders!

Within the UK, public expenditure is largely financed through taxation. Her Majesty's Revenue and Customs (HMRC) collects most taxes. Anyone caught evading tax faces fines of up to 100% of the money owed to the Revenue. In addition, where deliberate deception is proved, a jail sentence of up to seven years can be imposed.

It has just emerged that HMRC has obtained information on about 100 accounts of some of the UK's richest people, held in the bank owned by Liechtenstein's royal family. Thousands of Britons are believed to hold accounts in Liechtenstein. This is one of three places classed as an 'uncooperative tax haven' by the Organisation for Economic Co-operation and Development (OECD) for failing to allow tax authorities in other countries access to its clients' bank details. Andorra and Monaco are the other two. (The Sunday Times, 24 February 2008)

How HMRC got hold of the information (after reportedly paying £100,000 for it) is a tale of intrigue involving German spies, a mysterious whistleblower and determination by the British taxman to claim a share of hundreds of millions of pounds hidden in secret bank accounts. Andrew Watt, an accountant who worked for six years as one of HMRC's special investigators said: 'This is a coup for HM Revenue & Customs. They will be very excited. Until now Liechtenstein has been beyond the reach of the taxman. Not any more. Make no mistake, a lot of people here will be very worried.' (The Sunday Times, 24 February 2008)

When contacted by the BBC, a spokesperson for HMRC confirmed it had paid for the information 'to protect the UK exchequer from those who seek to hide behind secrecy laws' but would not confirm the amount paid/ (BBC News, 24 February 2008) The files have also been acquired by German and USA tax authorities who have been using them to try to get back millions in lost revenue. It is the first time that any tax authority has been able to obtain such detailed information about so many accounts in Liechtenstein/ (The Sunday Times, 24 February 2008)

Read the Times 100 case study on HMRC. Its role is vital for the government's control of the economy. Its innovation in using online technology has made tax collection easier and made it harder for income taxes to be evaded. The government uses tax revenue to finance its plans for the economy. Society benefits from the projects and services that are provided through public expenditure.

Sources:

The Sunday Times, 24 February 2008 (print edition)

The Times Online – Tax authorities pay for Britons' bank details, 24 February 2008

The Times Online – Revenue men prise open princely tax haven, Liechtenstein, 24 February 2008

BBC News – UK in Liechtenstein tax data deal, 24 February 2008

The Times 100 Edition 12 Case Studies – HMRC, How HMRC collects tax revenue to support Governement policy

Potential Study Questions:

  • Within the UK, how is public expenditure largely financed? 
  • Give one example of Direct Taxation and one of Indirect Taxation.
  • For Economists: With reference to the Laffer Curve, explain how increasing tax rates might result in lower tax revenues for the Government.

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