2 Encouraging people into the formal
economy
8. In recent years the Department has used publicity
campaigns to encourage people who may otherwise have operated
in the hidden economy to register and pay tax. The Department
estimates that some 8,300 people registered for tax due to these
campaigns. It estimates that these newly registered people will
pay tax of around £38 million over three years, providing
a return of £19: £1 on expenditure of £2 million.[9]
9. Some of those operating in the hidden economy
think the Department could make more use of campaigns to inform
people of the benefits of working in the formal economy and make
clearer what is likely to happen to them if they come forward
voluntarily. Some of those operating in the hidden economy are
concerned whether they can afford to pay the tax owed, not realising
that the Department will allow time for them to pay. The European
Commission has identified opportunities for Member States to make
more use of advertising campaigns to highlight to the public the
risks of employing someone in the hidden economy. The Department
recognised the need to do more to raise awareness of the risks
of operating in the hidden economy.[10]
10. In 2004, our predecessors pointed to the growing
threat of fraud involving offshore accounts.[11]
In 2006 and 2007 the Department won landmark rulings against a
number of major financial institutions that required them to disclose
details of UK resident offshore account holders who may owe tax.
As a result, the Department received details of around 400,000
bank accounts and introduced the Offshore Disclosure arrangements
to encourage these people to come forward voluntarily to disclose
and pay all tax owed. The Department fixed the penalty at a lower
level than would normally be the case to encourage people to take
advantage of the scheme. Two weeks before the closing date, the
Department had received 10,000 notifications. With further publicity
the number rose to 64,000. Of these, 45,000 people paid over £400
million in tax and penalties. The project cost the Department
£6 million, thereby achieving a return: cost ratio of £67:£1.[12]
11. The Department is now contacting people who it
believes may owe tax but who chose not to come forward. If they
owe tax, the Department intends to impose higher penalties than
for people who came forward voluntarily under the arrangements.
It will also consider whether to refer the most serious cases
for prosecution.[13]
9 C&AG's Report, paras 2.7-2.8 Back
10
Qq 46, 114; C&AG's Report, paras 2.9, 4.13, 4.15 Back
11
Committee of Public Accounts, Tackling fraud against the Inland
Revenue, First Report of Session 2003-04, HC 62 Back
12
Qq 46, 92, 94; C&AG's Report, paras 2.15, 2.16 Back
13
Q 93; C&AG's Report, para 2.16 Back
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