Revenue quietly ups spending in tax dragnet

The Treasury has quietly sanctioned a massive hike in spending on large-scale Inland Revenue investigations in an attempt to increase the amount of tax being brought in from big companies and wealthy people.

Hidden away in the small print that accompanied last week's budget, £155m has been set aside to ensure extra tax compliance. This comes on top of £66m earmarked in last year's budget and appears to be at odds with the massive cost savings anticipated by the Chancellor from the merger of Inland Revenue and Customs & Excise. In the budget he said the move would mean 10,500 job losses.

Last year's £66m initiative focussed on offshore tax shelters. A Revenue spokesman said the taxmen were on target to bring in the extra £1.6bn of tax over three years that the Chancellor said the move would recoup. Over 150 people who pay a lot of tax have been interviewed and almost every one has ended up paying more tax.

Encouraged by that, Gordon Brown has sanctioned a new assault, aimed at bringing in £1.7bn of extra tax. He did not say how much this will cost, but analysis of figures in the Red Book that accompanies the Budget by accountants Pricewaterhouse- Coopers has revealed it to be £155m over three years.

The Revenue said that the targets for this investigation would be large companies and individuals with complex tax affairs. "I asked what complex tax affairs meant and was told it was anyone earning more than £300,000," commented one accountant.

"This reveals a real sea change in the Revenue's strategy," said Stephen Camm, a tax investigations partner at PwC. "It is interesting that the Revenue is finding it hard to quantify what the missing revenue is. There is a lot of hope value."

The Treasury has no estimates for how much income and corporation tax the Revenue is failing to collect.

However, at Customs & Excise, which is soon to merge with Revenue, the estimate of missing VAT was recently increased from 14.7 per cent to 15.7 per cent - or the equivalent of £12bn a year.

Customs is increasing the number of staff tracking VAT evasion and avoidance by 1,000.

The increases at Customs and the Revenue appear to be at odds with the massive cost savings that the Chancellor trumpeted from the merger of the two agencies, which he announced last week.

A study by the Treasury mandarin, Gus O'Donnell, said that 10,500 back-office jobs could be cut.

A Treasury spokesman said that the cuts would come from eliminating head office costs and increased use of technology, and would not impact on front-line tax inspectors. However, Richard Clarke, a senior manager at PwC and a former tax inspector, said he feared the disruption from the merger could harm the effectiveness of the two departments.

He worked at the Revenue in the mid-1990s, when there was a similar "spend to save" initiative, and, he said, there was no evidence it increased the amount of tax collected.

The merger will also throw up other problems, such as different IT systems, pay scales and powers of investigation.

Customs officers are allowed to raid premises and arrest people while tax inspectors have no such powers.

The Treasury said that Customs' arrest powers would remain, but only for use in limited circumstances.

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