Audit Office assesses HMRC’s investigations of ‘a third of HNW taxpayers’

HM Revenue & Customs is investigating around a third of the UK’s wealthiest taxpayers to find out if they’ve been under-paying the tax they owe, the National Audit Office revealed today, as it published a report which details its findings of research into the way HMRC is carrying out this work.

The NAO is a non-governmental UK body which scrutinises public spending on behalf of the UK government.

According to the NAO, HMRC is looking into what it says may be as much as £1.9bn of tax due, of which £1.1bn “relates to the use of marketed avoidance schemes”. The NAO estimates that around 15% of high net worth individuals have used at least one such scheme.

The HMRC unit in question, which is dedicated to collecting tax from HNWIs, was established in 2009 and according to the NAO, raised £416m from this group in 2015-2016, on top of what these taxpayers had already voluntarily declared during the period, which was more than double the amount clawed back from such taxpayers in 2011-2012.

The HMRC investigators focus on possible cases of tax avoidance and the legal interpretation of complex tax issues, rather than tax evasion, zeroing in as they do so on some 6,500 individuals with assets of more than £20m, according to the NAO.

Over the past five years, the unit has investigated and closed 72 cases relating to HNWIs, the NAO reports, adding that 70 of these were investigated with civil powers, raising £80m from the individuals in question, while the remaining two cases were criminally investigated and passed on to the Crown Prosecution Service. Of these two cases, one was taken forward and successfully convicted.

As of last month, HMRC was criminally investigating a further 10 high-net-worth individuals, the NAO said.

“As this specialist unit expands, HMRC needs to do more to identify the most effective approaches to maximising the tax revenue paid by the very wealthiest people in the UK,” the NAO added, in a statement accompanying its report.

‘Formal enquiries’ 

HMRC is carrying out these  investigations of Britain’s HNWIs by means of so-called “formal enquiries”, which are launched whenever the Revenue doesn’t understand or agree with the position taken by a taxpayer with respect to their tax structuring.

Such enquiries, the NAO notes, can take a long time to resolve, with 6,000 issues under enquiry at the moment having been open for more than 18 months, 4,000 of which have been open for more than three years.

Amyas Morse, head of the National Audit Office, noted that the tax affairs of the wealthiest in society “are complex, making it harder for HMRC to ensure that they are paying the right amount of tax”.

“HMRC’s specialist team gives it a better understanding of the tax affairs and behaviours of these taxpayers,” he added.

“While the yields from HMRC’s work in this area have increased, it needs to evaluate what approaches are the most effective, and to understand the outcomes it achieves.”

According to the NAO, high net worth individuals make up 1 per cent of users of tax avoidance schemes, but account for 10 per cent of the tax at risk.

‘Harsh’

The NAO’s report received widespread media coverage in the UK on Tuesday, much of which was on the “harsh” side, according to Gerry Brown, an Edinburgh-based tax expert and former life insurance executive.

Brown, who started his career with the Inland Revenue, as the UK’s tax body was then called, added: “Press criticism of HMRC for only securing one successful prosecution is misguided. It is surely more efficient for HMRC to recover the tax due, interest thereon and a stiff penalty [from the HNWIs it is investigating] rather than to incur the costs of a lengthy criminal trial.”

That said, Brown called attention to HMRC’s accounting of the amount of the yield it says it has got back from the HNW taxpayers it has been pursuing, citing the fact that a significant proportion of this sum – more than 50%, in the case of the 2014-2015 period mentioned – is, as the report explains, in the form of “future revenue benefit” rather than cash.

“Future revenue benefit is HMRC’s estimate of the revenue benefits where it considers it has changed the behaviour of the taxpayers, and can be claimed for up to five years,” Brown said.

“This is not ‘cash in the government’s pocket’, but additional tax HMRC thinks it will collect in future years, because these HNWI won’t indulge in the same or similar tax avoidance.

“Is this realistic?”

To read and download the 56-page NAO report, HMRC’s approach to collecting tax from high net worth individuals, click here.

ABOUT THE AUTHOR
Helen Burggraf
Helen Burggraf is the editor of International Investment. A US-trained journalist, she has worked in Rome, New York City and London, covering everything from the fashion and retailing industries to the global drinking water and water-treatment sector, private equity, and most recently, the international cross-border financial services/advice industry.

Read more from Helen Burggraf

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