May 2016 saw HM Revenue & Customs (HMRC) announce that its crackdown on tax avoidance would be extended. This was due to the amount it netted the government, Pinsent Masons claimed.
Its tax director, Paul Noble, said: “High net worth tax is likely to face further scrutiny as a result – for those in the UK and abroad. Whilst such particular cases constitute a small proportion of the total sum of unpaid tax uncovered each year, they often provide a focal point of public interest – rendering them a real priority area for HMRC.”
The results of HMRC’s efforts are now out. From 2014-15 it uncovered £4.3bn in high net worth tax. This included £3bn in income tax and national insurance, as well as £880m in capital gains tax. And it is now investigating risks from high net worth individuals with a potential value of £1.9bn.
HMRC considers there to be 6,500 high net worth individuals – 0.02 per cent of all taxpayers – and the £1.9bn figure represents an estimate of the amount of money it could rake in from one tax year. With around 15 per cent of high net worth individuals having used at least one sneaky scheme, it attributes £1.1bn as being used on ways to avoid paying tax.
“But the risks from high net worth tax relate primarily to avoidance and the legal interpretation of complex tax issues, rather than simple evasion,” the National Audit Office (NAO) explained. “So HMRC is currently running a formal enquiry on around a third of such taxpayers, with an average of four issues being examined per taxpayer.
“Formal enquiries occur where HMRC does not understand or agree with the position taken by a taxpayer. These enquiries can take a long time to resolve with 6,000 issues under enquiry open for more than 18 months – 4,000 of which have been open for more than three years.”So far, HMRC has recorded a yield of £416m from 2015-16 from its high net worth tax unit. This is an increase from £200m in 2011-12 and already exceeds HMRC’s internal target of £250m this year. It seems one in three wealthy Brits are under formal inquiry, but the NAO claimed that while the high net worth tax team looked into and closed 72 cases of suspected tax fraud, only one ended in prosecution.
This has led HMRC to refine its approach, the NAO claimed.
“For the ordinary taxpayer, HMRC’s use of ‘customer relationship managers’ will sound rather a cosy way for HMRC to engage with the richest people in the country; people worth over £20m each,” Meg Hillier, chair of the Committee of Public Accounts, said.
“However, I am pleased to see HMRC is beginning to link these individuals to the businesses and trusts they are also involved in, to help tackle the £1.9bn of tax that is potentially at risk. We will be watching carefully to see how effective HMRC’s reorganised customer compliance team proves to be. And to see the outcome of HMRC’s proposals to sanction those who market these schemes, including the wealthy individuals promoting tax avoidance to one another.