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The scale of tax avoidance and evasion by wealthy people could be much higher than the UK tax authority previously thought, a report by the National Audit Office has found.
Wealthy people, defined by HM Revenue & Customs as those who either earn more than £200,000 a year or with assets of more than £2mn, paid £119bn in personal taxes in 2023-24, an average of £140,000 per person. The sum represented 25 per cent of the UK’s personal tax receipts.
But the complexity of most wealthy people’s affairs made it more difficult for HMRC to identify the tax they owed and presented opportunities for them deliberately to avoid paying the correct amount, the NAO warned in a report on Friday.
The report said that in 2022-23 HMRC’s estimate of the “tax gap” among this cohort — the difference between the amount of tax that should be paid and what was actually paid — had been only £1.9bn.
However, it found that HMRC had subsequently doubled the annual “compliance yield” from wealthy individuals from £2.2bn in 2019-20 to £5.2bn in 2023-24. The term refers to tax revenue that HMRC has collected because of its work to ensure compliance.
The figures showed HMRC had collected more tax than it had previously believed possible, according to the report.
The NAO report said: “This raises the possibility that underlying levels of non-compliance among the wealthy population could be much greater than previously thought.”
Despite the growth in the population of wealthy people, the number of criminal prosecutions over unpaid tax and HMRC penalties issued to wealthy people had declined in recent years, the report added.
Gareth Davies, head of the NAO, said HMRC deserved credit for greatly increasing the additional tax revenue its compliance work had brought in from wealthy taxpayers.
But he added: “This may indicate that levels of non-compliance are higher than previously estimated. HMRC should also seek to provide greater transparency to give greater confidence to the public that all taxpayers contribute their fair share.”
The report also addressed issues around tax evasion and avoidance by wealthy people with assets overseas, which the NAO said HMRC had recognised as a key risk.
The report said HMRC’s public estimate that £300mn in tax revenue was lost through this route in 2018-19, the most recent year available, did not fully capture the amount of potential lost tax.
The report pointed out that UK tax residents held £849bn in offshore accounts in 2019. It added: “Internally, HMRC has identified a much larger amount of tax at risk from all forms of offshore non-compliance, but it does not publish this figure.”
Meanwhile, the tax office had set out only a “limited strategy” to address tax evasion and avoidance by wealthy people, the NAO said.
At the Autumn Budget the government provided funding for an extra 5,500 HMRC compliance staff over the next five years, the report noted. However, it said the tax office did not yet have a clear plan for ensuring the team got the skilled staff it needed.
Among several recommendations, the report called on HMRC to develop a “clear strategic vision and plan” to tackle wealthy non-compliance and provide “sufficient transparency to give greater confidence” to the public.
Caitlin Boswell, head of advocacy and policy at tax justice UK, a campaign group, noted the growing gap between the tax owed by the wealthiest people and what was actually paid.
“That’s because of things like secret offshore tax havens used to stash assets that the tax authority has no oversight of,” she said.
She also blamed the problem on rich people’s use of tax agents to exploit “loopholes in the system”.
HMRC said it was its duty to ensure everyone paid the right tax under the law, “regardless of wealth or status”.
It added: “The government is delivering the most ambitious package ever to close the tax gap and bring in an extra £7.5bn for public services per year by 2029-30.”