Threatening to take taxpayers to court if they dispute HM Revenue & Customs rulings has helped boost the self-assessment tax take by £1.4 billion.
Extra tax collected after opening inquiries into self-assessment returns has almost doubled from £856 million in a year after HMRC started to get tough with taxpayers.
Disputing self-assessment claims is now HMRC’s fastest growing revenue stream, says research by tax consultants UHY Hacker Young.
The firm points out that HMRC has made clear in the media and letters to taxpayers that they win around 80% of cases that go before tribunals and the courts.
The target tax avoidance ploys that have yielded most of the cash are employee benefit schemes, managed service companies and film tax write-off partnerships.
Threat of legal action
UHY Hacker Young also explains that software coming online to analyse financial data has helped identify tax avoidance as well.
The HMRC database collects information from financial companies, councils, utility providers and online portals such as eBay, Amazon and AirBnB.
Letting agents and mortgage companies all supply property and landlord information.
All this data is compared with self-assessment returns, and if any anomalies appear, an investigation is opened.
Mark Giddens, head of the private client department in UHY Hacker Young’s London office, said: “The threat of expensive litigation is forcing many taxpayers to pay up without a fight.”
Taxes raise £569 billion
“HMRC are making sure everyone knows about their recent record in court, and are using that to intimidate taxpayers.”
“HMRC’s use of technology also means they now have access to more information on taxpayers, allowing it to generate evidence more rapidly than ever before.”
The latest official figures from HMRC show the entire tax take was up 6.7% in 2016-17 to £569.3 billion.
The biggest rises came from capital gains tax (Up 19% to £8.4 billion); stamp duty (Up 10% to £11.8 billion and inheritance tax (Up 3.8% to £4.82 billion).
Andrew Snowdon, a partner and head of corporate tax for UHY Hacker Young, said: “The last year has been a bumper one for the taxman, primarily thanks to bringing in a lot more money from wealthier individuals and entrepreneurs at the risk of incentivising them.”