HMRC beefs up but what are the rules?

HM Revenue & Customs (HMRC) is getting tough on high earners by beefing up its powers to peer into their tax affairs.

The headcount at the 'Affluent Unit' within HMRC has gone from 213 in 2012/13 to 327 in 2014/15 and the cost of inspectors' wages rose 68% over the same period to £13.1 million.

But it will be money well spent if the taxman can squeeze some more money out of high-earning workers.

The Affluent Unit looks into the tax affairs of those earning £150,000 or more and it is particularly interested in those who earn lots but pay low rates of income tax, own multiple homes (that they could presumably rent out and make more income on), and those who have offshore accounts where they could presumably stash money instead of paying tax on it.

All these seem fair enough and I'm sure that no-one is going to shed a tear for rich people who have their financial affairs scrutinised.

There is one area that HMRC is looking at that should cause concern. It wants to examine more clearly the finances of those who use tax avoidance scheme.

You're probably asking why we should be concerned? Well, my concern is that HMRC hasn't really got its house in order when it comes to tax avoidance.

We all know that tax avoidance is legal and tax evasion is illegal. Under avoidance, you're allowed to pay as little tax as you can get away with as long as the schemes you're putting your money in have been given the OK by HMRC.

The problem is that there are lots of schemes that were given the OK by HMRC and then it retrospectively closed them down because they retrospectively broke the rules. Let's not forget the episode with comedian Jimmy Carr who was lambasted by not only the press but the prime minister for investing in something that was allowed at the time he invested in it.

I don't think there's anything wrong with HMRC looking into people's tax affairs, that's their job after all, but we don't need more retrospective action. Instead of increasing headcount in the Affluent Unit to tackle people after their financial plans have been made and then hitting them with tax charges, why can't we have a tax system that works so that no-one has to fear getting caught out – where the schemes signed off by the taxman stay that way?