Inland Revenue Getting Less From Taxpayer Investigations

by Robert Lee, Tax-News.com, London

28 October 2004

Figures in the UK tax collector’s annual report have revealed a fall in the cost effectiveness of many investigations into taxpayers’ returns.

According to the report, the Revenue exceeded its target of 138,434 tax enquiries by more than 400. However, the amount the ratio of the amount of tax collected compared to the cost of tax enquires for non-business taxpayers has fallen over the last two years to 5.6 times from 6 times.

There are also concerns that the Revenue is targeting the wrong taxpayers. Kevin Walmsley, partner at Wilkins Kennedy, points out that the amount of tax collected compared with the cost of each investigation for small business tax inquiries was just 1.3 to one. This compares to a ratio of 123 to one for international business tax enquiries.

"The worrying conclusion that could be drawn from these figures is that the Revenue is losing focus, and that a higher percentage of innocent individuals are being pursued in investigations," observed Mr Walmsley, according to the Financial Times.

Putting a different slant on the figures, the Inland Revenue believes that the reduction in the yield to cost ratio reflects the success of its ongoing compliance campaign, arguing that the figures are “a clear demonstration that our continued enabling projects are working.”

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