How to beat tax evasion in the UK

Tax Research UK:

I was asked yesterday how we could beat tax evasion in the UK.  This line of questioning usually starts with the person asking (often, as in this case, a journalist) suggesting that this task is impossible and that we had better just grin and bear things because they cannot see how we could trace those who might owe tax, but don’t want to pay.

I do not, perhaps surprisingly, disagree with their suggestion as to the implausibility of achieving this goal using the approach they suggest. The trouble for those adopting a case-by-case approach to beating tax evasion (and I fear HMRC does adopt it, too often) is that you are almost immediately overwhelmed by the obvious implausibility of individually tracking down hundreds of thousands, and maybe many more, people who might be under-declaring their income or not declaring it at all.

But to move from that position to pessimism about beating tax evasion is misplaced, precisely because the logic of achieving that goal this way is wrong. To beat tax evasion you cannot start with the tax evader. The cynics are right; there are too many of them for that to be the starting point. Instead you have to realise that the goal of any tax system is to extract the maximum voluntary compliance from the tax paying population. Nothing else can achieve the goal of collecting the tax due.

There are many ways to increase this voluntary compliance but what almost all of them demand is that the taxpayer know that the chance that they are cheating will be discovered. In other words, greater transparency has to be used to open up the spaces where cheats can operate now.

All credit and debit card payment processors must be required to supply full information on the people for whom they manage accounts  and the annual sums processed to HMRC.  It is a nonsense to believe that all tax evasion is now in the cash economy: much of it will be electronically recorded somewhere, but not captured by the tax system. Steps have to be taken on a formal basis to reduce this risk, and this is an obvious way to do that.

UK banks should be required to supply annually  to HMRC, and in slightly more abbreviated form to Companies  House, information on all the companies for which they maintain accounts in this country (whether UK registered or not) including details of which company it is, where they correspond with it, who they have proved the beneficial owners and directors to be and how much is deposited in each of its account each year.