Where’s the deterrent?’ HMRC urged to get tougher with evaders

Her Majesty's Revenue and Customs (HMRC) is getting better at tracking down unpaid taxes but could still be more effective, a report from the National Audit Office (NAO) has concluded.

HMRC raised an additional £4.40 for every £1 it spent on chasing unpaid tax, hidden away by evaders. However, the report said the penalties imposed by HMRC on these people were not a deterrent and there were far too few prosecutions each year.

"The risk of being detected and the consequent penalties for non-compliance are relatively low, and there are opportunities to tackle the hidden economy more effectively," the report said.

But the NAO also highlighted the success of the recent campaign against taxpayers who have been hiding income in offshore tax accounts.

The bid by HMRC to get those avoiding tax to come forward led to 45,000 people with offshore accounts paying an extra £400m in tax, interest and penalties.

The NAO said the scheme showed good practice because it "respects the tax rates of the UK, is limited in scope and duration, and uses direct targeting such as writing to those individuals suspected of holding income and/or capital outside of the tax system".

The report suggested this approach should be used for other groups of suspected tax evaders, in particular those who receive their wages through cash-in-hand payment.

Any such move should be backed up by an extensive advertising campaign alerting people to the HMRC crackdown, the NAO added.