HM Revenue & Customs (HMRC) intends to investigate 50,000 small- and medium-size businesses this year for failing to keep proper records and for underpaying tax. The 'business records checks' campaign will target the 40% of all 4.9 million businesses that HMRC said suffered from poor record keeping and who were likely to owe unpaid tax. Penalties will be imposed for any record keeping failures. HMRC will target companies with a turnover of less than £50 million and fewer than 250 employees and expects to raise £600 million of extra revenue over the next four years.

The website WikiLeaks is going to expose thousands of wealthy bank clients with offshore accounts who may be using them to avoid or evade tax. Rudolf Elmer, former employee of Swiss bank Julius Baer, has handed over two CDs containing the potentially dangerous information to the WikiLeaks founder Julian Assange. Elmer - who will stand trial in Switzerland accused of coercion and violating banking secrecy laws - has said he wants to expose mass potential tax evasion. The CDs are believed to include the details of 2,000 wealthy individuals and corporations from the UK, US, Germany, Austria, Asia and elsewhere.

Following a hearing in Bristol, an aeronautical engineer working on a contract basis for Airbus UK has won his appeal against HMRC's determination that he should be taxed as an employee under IR35 rules rather than as self-employed. The First Tier Tribunal found in favour of MBF Design Services, the trading company operated by Mark Fitzpatrick. Part of the contract with Airbus included a clause setting out the client's right to immediate cancellation of the contract, which was crucial to the tribunal's decision that the terms were inconsistent with the mutuality of obligation that exists between employee and employer. Interestingly, during the course of the hearing, one of HMRC's witnesses, an Airbus design manager, admitted that his statement had been prepared by HMRC.

 

The Institute for Fiscal Studies (IFS) has analysed this year's tax increases and estimates that the average household will be £200 worse off and that 750,000 more people will become higher-rate taxpayers from April with the highest marginal rate of income tax actually becoming 60%, and not 50% as the government has claimed. Some 500,000 people will no longer pay income tax owing to the changes. The IFS reported that the main winners from the 2011 tax changes will be lone parents who are not working and low- to middle-income households without children. The threshold for the higher-rate 40% income tax rate will be £35,001 of taxable income from April, compared with £37,401 this financial year. Taking into account the personal allowance, individuals will start to see their income tax and National Insurance payments increase sharply when their earnings rise above £42,475. The biggest losers are the very richest households, owing to restrictions on the amount that can be contributed to a private pension. They have also been affected by the 50% income tax rate on earnings above £150,000 and withdrawal of the income tax personal allowance above £100,000 that were introduced in April 2010. For every £2 earned above £100,000, £1 of the personal allowance is lost. The removal of that allowance means that between £100,000 and £114,950 earnings attract a marginal tax rate of 60%.

The Public Accounts Committee (made up of MPs) has described the implementation of a new PAYE computer system used by HMRC as "flawed". It said up to 22 million people had not been taxed accurately since 2004/05, causing "unacceptable uncertainty and inconvenience". HMRC claimed, in response, that the new computer system was now improving fairness in the system. The problems first came to light last September when HMRC advised taxpayers that a new computer system for managing the PAYE system had revealed 6.6 million people who had overpaid or underpaid tax in the two years 2008-2010. Most individuals have subsequently been sent letters either asking them to pay more or containing a refund. This cut no ice with the Public Accounts Committee, who pointed out that: "The department [HMRC] knew that seven million people had overpaid or underpaid tax in 2008/09 but took no action." Following public questioning of senior HMRC officials, the MPs said that a backlog of a further 15 million people on the PAYE system have still not had their tax affairs settled for the years 2004/05 to 2007/08.

HMRC has denied accusations that it has lost £1.3bn in National Insurance contributions. Ian Liddell-Grainger, who chairs the All Party Parliamentary Taxation Group, recently claimed that unaccredited contributions for more than nine million people had built up in the past five years. HMRC replied that the idea that people's state pension entitlement might be affected was "nonsense".

The National Fraud Authority's (NFA) most recent report reveals tax fraud is the highest individual public sector fraud loss area, with an estimated £15bn lost each year. The latest NFA figures are up by almost a third compared to last year's data. Of the £15bn, some £7bn is attributed to evasion, £5bn to crime and £3bn to the hidden economy.

HMRC managed to raise £8.5bn from investigating serious tax evasion cases, according to a separate report by the National Audit Office. In one of its periodic reports on the inner workings of HMRC, the National Audit Office (NAO) found that the tax department's civil investigation directorates have taken "significant steps" towards achieving value for money, but pointed out several areas for improvement.

The NAO will investigate how HMRC tax inspectors reach settlements with multinationals following the publicity surrounding Vodafone's recent £1.2bn settlement deal. The review of deals with large firms, which is being carried out on an ad hoc basis, will form part of the NAO's annual review of HMRC accounts, due in July.

The Association of Revenue and Customs (ARC), the union representing senior managers in HMRC, has advised the Treasury sub-committee that proposed budget reductions could undermine HMRC's ability to identify, prioritise and prosecute those guilty of tax avoidance. Graham Black, ARC president, said: "It is no coincidence that total revenues are falling at a time when HMRC has suffered significant staffing reductions." Staff numbers fell from 99,179 staff in 2004/05 to 68,037 in June 2010 and a further 15% loss is planned for 2011.

The government has pledged to invest £900m in extra tax-gathering activities.

The government has done a U-turn on its stance over PAYE underpayments. Treasury Exchequer Secretary David Gauke confirmed that HMRC would apply Extra Statutory Concession A19 to pensioners who were faced with repayment claims.