In this week’s Enews, there is news on how the Chancellor should use the Autumn Budget to reform the tax system. There is also a warning to the government over tax avoidance laws and news on HMRC’s use of ‘big data’ to update you on.
Chancellor should use budget to reform tax system, IFS says
Chancellor Rachel Reeves should use the Autumn Budget to reform the UK’s tax system, says the Institute for Fiscal Studies (IFS).
The think tank says this would help Ms Reeves to raise more revenue while limiting the hit to the economy.
The IFS warns the Chancellor against raising the levels of existing taxes to bring in the estimated £30 billion she requires to stay on course for her targets to repair the public finances.
Changes to wealth-related taxes, including Capital Gains Tax, would be more effective than the introduction of an annual wealth tax, the think tank added.
Isaac Delestre, a Senior Research Economist at IFS, said:
‘Revenue-raising seems likely to be a major goal of the coming Budget. But if Rachel Reeves limits her ambition to collecting more revenue, she will have fallen short.
‘Almost any package of tax rises is likely to weigh on growth, but by tackling some of the inefficiency and unfairness in our existing tax system, the Chancellor could limit the economic damage.
‘The last thing we need in November is directionless tinkering and half-baked fixes. There is an opportunity here. The Chancellor should use this Budget to take real steps down the road towards a more rational tax system that is better geared to promoting the prosperity and well-being of taxpayers.’
Internet link: IFS website
New tax avoidance law risks missing target, warns CIOT
New legislation aimed at tackling rogue tax agents and those pushing tax avoidance schemes won’t catch all of those it is aimed at, warns the Chartered Institute of Taxation (CIOT).
Instead the measures could make it harder for some taxpayers to get the advice they need to comply with tax laws, the Institute added.
The CIOT argues that the current proposals are not well targeted, imposing potentially unworkable conditions on tax agents. Meanwhile, many of the ‘bad actors’ who are the real target of these measures will be out of scope and able to continue their abuse of the system, it adds.
The Institute says it is concerned that, without changes, the proposals will lead many reputable advisers to withdraw from giving advice where the meaning of complex tax legislation is unclear, or where the potential tax liability is high.
Ellen Milner, CIOT Director of Public Policy, said:
‘The government are right to be taking a robust approach to those who continue to devise, promote or sell mass-marketed tax avoidance schemes. There should be no place for such people and their schemes in the tax services market.
‘However, the current proposals are set to miss their target. According to HMRC, the market for tax avoidance schemes is now dominated by about 20 operators. These people are not mainstream tax and accountancy professionals and are largely based overseas. The legislation as drafted will struggle to capture these people.’
Internet link: CIOT website
HMRC brings in extra £4.6 billion using ‘big data’ system
HMRC brought in an extra £4.6 billion in tax revenue last year by using its ‘big data’ system.
The tax authority’s Connect system uses data from a wide range of financial sources to analyse tax returns and detect potential evasion.
In a response to a freedom of information request from law firm Pinsent Masons, HMRC said it generated on average £3.4 billion in additional annual yield from Connect cases.
However, this rose by over a third in the 2024/25 tax year when Connect generated approximately £4.6 billion.
Connect, which was introduced in 2010, has grown in scale over the last 15 years to become one of the largest datasets held by the UK government.
It has now become a key part of tax investigations, with around 4,300 HMRC staff now using it.
The increasing scale of the Connect system allowed HMRC to conduct more than half a million cases in the last year alone.
Ian Robotham, a tax expert at Pinsent Masons, said:
‘HMRC has spent time building up the amount of data sources that it can access and analyse.
‘The algorithms that it uses allows HMRC to spot anomalies that would otherwise go unnoticed by the human eye.
‘With thousands of HMRC staff now using Connect, taxpayers are facing a level of oversight that would have been unthinkable just a few years ago.’
Internet link: Pinsent Masons website
