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The Pamphlet Collection of Sir Robert Stout: Volume 14

Evasions of the Income Tax

Evasions of the Income Tax.

"The exemption of one man means the extra Taxation of another."

Mr. Gladstone (1883.)

The study of the Annual Reports of our Inland Revenue Board is not calculated to exalt one's opinion of the Income Tax as far as Schedule D is concerned. The following extracts from these official documents are offered as a warning to any who are inclined to prefer systems of taxation based on the assessment of Income to those much stabler systems based on Rental.

12th Report (1869). "The claims to compensation which have arisen out of a recent extensive demolition of houses by the Metropolitan Board of Works, have given the usual evidence of the frauds which prevail in returns under Schedule D. The total number of these claims for compensation was 200, and on examination by our officers 80 surcharges had to be made, which were all sustained on appeal. In other words, the Revenue had been defrauded in 40 per cent, of the cases enquired into. The aggregate incomes returned by the parties was £73,642, and the amount ultimately found correct was £171,370, being 130 per cent, in excess of their returns. This naturally suggests the question, what must be the amount of loss to the Revenue in the assessments to Schedule D throughout the United Kingdom? and we think that the information furnished by this instance of compensation on a large scale does really give us the means of forming a rough but approximate estimate of the deficiency in returns. Of course if this were a solitary instance of the kind, it would be eminently illogical to build any argument upon it, but it is an invariable consequence of claims for compensation, where the actual profits of trades or professions are divulged, that we find the Income Tax Returns largely deficient. And this is not confined to any particular class, trade, or profession; we find the same when on abolition of some particular court the legal practitioners make good their claims; we find it on all occasions of large demolition of shops and warehouses for public purposes, in every variety of Trade; and we find it in great Public Companies, and in firms whose business is almost a national concern from its magnitude and world-wide reputation. We therefore think that we may venture to generalize upon the facts which the most recent occasion of compensation cases has furnished.

"These facts are that 40 per cent, of the persons assessed had understated their Incomes 130 per cent. Let us see what additional Revenue Schedule D would yield if the same proportion of deficiency prevails throughout. In 1864-5 the number of persons assessed under D was 350,512,40 per cent. of which is 140,204. Taking these at the average assessment of the whole Kingdom we thus assume:—
Income returned in Assessments £44,042,306
Income which should have been returned (130 per cent, more) 101,297,303
Difference, or sum on which Duty was evaded £57,254,997

"We see no reason to distrust this estimate, at all events no reason to consider that it errs on the side of excess rather than otherwise. We have already stated that we have found every class of contributors to Schedule D liable i to the same shortcomings in Returns. We are far from saving that in all cases there has been wilful attempt to defraud the Revenue. In many cases no doubt the errors are unintentional, but what we are chiefly concerned with is the effect on the Public Income . . . . If Schedule D gave its due quota to the Revenue, we might be relieved of many an unpleasant impost."

Specimen of Public Companies' Returns of Income.

Returned at Proved to be
1 £2,000 £39,500
2 9,000 38,000
3 55,000 81,000
4 23,284 45,984
5 2,000 12,699
6 16,250 24,492
7 £1,600 £12,000
8 5,000 30,000
9 39,300 52,000
10 14,674 55,000
11 140,465 186,539
12 (No return) 63,949
page 179

Deficient Returns under Schedule D.

The following cases, selected from a large number, will afford some idea of the great loss sustained by the revenue by reason of deficient returns.

Returned at Proved to be
Nil. £7,217
£1,925 3,485
4,500 8,000
4,500 9,366
140,207 184,224
76,420 95,627
20,612 40,000
239,334 287,780
190,513 254,150
Nil 5,235
7,068 18,272
120,000 178,300
104,565 130,411
14,596 25,000
7,675 15,000
7,500 12,000
104,618 126,025
6,209 10,000
17,500 22,000
£4,160 £10,000
1,000 5,000
5,000 10,000
750 2,000
1,700 5,500
6,000 10,000
13,957 24,000
3,000 8,000
1,950 6,000
3,500 16,000
1,800 5,000
25,000 35,000
2,500 8,000
1,450 9,000
7,500 11,500
18,249 29,238
250 3,500
16,330 22,000
Total Returned £1,186,838
Instead of £1,650,880

It is impossible to expect any practical steps from aroused public opinion and criticism in these matters so long as the names of the parties are screened from exposure. The Inland Revenue officers are not allowed to divulge the names of even parties detected in the grossest frauds. In the Reports of the Department they have to carefully avoid giving any clue that might identify these respectable criminals, and even in the worst cases ready payment is made of £100 fine, and appeals to court are avoided thereby.

Conscience-Money Payments.

These frequently give startling evidence of Government inability to obtain a correct knowledge of taxable incomes. Often £10,000 or more has been paid in one sum for Conscience-money in unpaid Income Tax.