The UK has not been tough enough in its efforts to ensure its richest citizens are paying their fair share of tax, a new House of Commons Public Accounts Committee report claims.
It concludes by recommending the UK’s tax authorities toughen their stance, beginning with “a formal evaluation” of a “High-Net-Worth Unit” set up by HM Revenue & Customs in 2009, to focus on wealthy taxpayers exclusively, and that HMRC also “routinely monitor, analyse and report on the tax receipts from this group of taxpayers”.
The tax authority should also “set out a time-frame for reporting back to this committee on the results of its evaluation,” the Public Accounts Committee (PAC) said in its report, officially published today, and available to read and download on the PAC’s section of Paliament’s website.
In a statement, HMRC refuted the PAC report’s findings.
HNWI tax take ‘fallen by £1bn’
Among the statistics the PAC report calls attention to is that the amount of tax being paid annually into the UK government’s coffers “by this very wealthy group of individuals” has actually fallen by £1bn since HMRC set up its HNW Unit seven years ago.
“HMRC needs to be tough, and be seen to be tough, on tax avoidance and evasion, to ensure that everyone, particularly the very wealthy, pays their fair share of tax,” the PAC report says.
“It is alarming that HMRC has around one third of [the UK’s ‘high-net-worth individuals] under enquiry at any one time, and [that] in 2015-16 [it] was investigating cases with a value of around £1.9bn extra tax revenue that might be due.”
The report notes that HMRC is “hampered” in its investigations into wealthy taxpayers “by not having the power to demand more information about what assets high-net-worth individuals hold, and by the way certain tax rules have been set and interpreted, such as…complex rules on image rights”.
The “image rights” matter concerns the way that income such individuals as premiere league football players receive from the marketing of their image is treated in tax terrms, which is different from the way their regular club salaries are taxed, as a result of a court ruling dating back to 2000. The issue hit headlines at the end of last year, when it emerged that HMRC was investigating “dozens” of UK football players for potential irregularities having to do with the way they were declaring their image rights income.
“By being more transparent about its work, seeking new powers where necessary, and delivering on its plans to get tougher with those who break the rules, HMRC could collect more cash, and must do more to give the public greater confidence that there is not one set of rules for the rich and another for everyone else,” the PAC report says.
Other key points in the PAC report:
* Since 2012, HMRC has issued 850 penalties, totalling £9m, to high net worth individuals; an average penalty of £10,500 (“That seems too small an amount to change the behaviour of multi-millionaires, particularly as avoidance is moving from off-the-peg marketed tax avoidance schemes to complex bespoke schemes, in effect, from a high street equivalent of off the rail Primark or Next to made to measure Savile Row”)
* In the five years to 31 March, 2016, HMRC completed investigations into “just 72 [high-net-worth taxpayers] for potential tax fraud. In 70 of these cases it used its civil powers: two were criminally investigated, of which just one was successfully prosecuted. This is a dismal record…[HMRC] tells us that it has opened ten more criminal investigations since”
* HMRC has committed to increasing the number of prosecutions of “serious and complex tax crime, with a particular focus on wealthy taxpayers and corporates, by 2020. This matters, because high net worth individuals’ avoidance through marketed schemes is the thin end of the wedge; £1.4bn, compared to a total of £14bn from marketed schemes as a total”
HMRC: ‘Absolutely no special treatment’
HMRC responded to the report’s critical findings by maintaining that there was “absolutely no special treatment for the wealthy” on the part of the UK’s tax administrators, and that, “in fact, we give them additional scrutiny, with one-to-one marking by HMRC’s specialist tax collectors, to ensure that they pay everything they owe, just like the rest of us do”.
“We have secured an additional £2.5bn from the very wealthiest since 2010,” an HMRC spokesman added.
“The NAO [UK’s National Audit Office] commends this approach as being in line with international best practice, and confirms that HMRC has increased the amount of tax we collect or secure from the very wealthy that would have otherwise gone unpaid.”
Gerry Brown, a commentator on UK tax matters who began his professional career as an Inland Revenue Inspector of Taxes, said his first thought, on reading about the findings of the Public Accounts Committee with respect to HMRC’s High Net Worth Unit, was what the Revenue’s explanation for the £1bn reduction in the unit’s tax haul might be.
“Of course it is possible for an individual to significantly reduce his or her income tax liability by making the largest permitted contributions to pension schemes, and investing through tax efficient vehicles such as venture capital trusts, enterprise investment schemes, seed enterprise investment schemes as well as qualifying social investments,” he noted.
“Investments could also be made qualifying for business property renovation allowance. These reliefs are in theory available to all, but in practice, only the wealthy would have the spare capital – and perhaps the risk appetite – to use them.”
To read Brown’s review of former head of the Public Accounts Committee Margaret Hodge’s just-published book on her time there, Called to Account: How Corporate Bad Behaviour and Government Waste Combine to Cost Us Millions, in the February, 2017 issue of International Investment magazine, click here.
To read and download the House of Commons Public Accounts Report, Collecting Tax from High Net Worth Individuals, from the Houses of Parliament’s website, click here.