One in three of Britain’s richest people under tax investigation

One in three of the richest people in Britain is under investigation by HM Revenue & Customs over nearly £2 billion (€2.2bn)of potentially underpaid tax, the government’s spending watchdog said on Tuesday.

The inquiries mostly concern avoidance and the legal interpretation of complex tax issues, rather than evasion, according to a report by the National Audit Office (NAO).

It found that a specialist unit set up to scrutinise the tax affairs of the super-rich secured an extra £416 million of tax in 2015-16, up from £200 million in 2011-12. The unit examines the tax affairs of 6,500 of the wealthiest people in the UK, with assets of more than £20 million.

The extra tax raised from this group, who account for just 0.02 per cent of all taxpayers, came on top of the £3.5 billion they paid in the form of income tax and national insurance – which was 1.3 per cent of the total revenue for those taxes – and £880 million in capital gains tax, which was 15 per cent of the total.

Demonstrate fairness

The rationale for the specialist unit that the Revenue set up in 2009 was that wealthy individuals often have complex tax affairs and more opportunity to engage in tax planning than the average taxpayer, the NAO said. It also said there was a need to demonstrate the fairness of the tax system, in reference to the common perception that rich people pay little tax.

In a sign of the extra scrutiny applied to the wealthiest taxpayers, the report found that roughly 9 per cent of the revenue received from high net worth individuals was from the unit’s compliance work. That compared with 3 per cent for large business and 5 per cent for the Revenue as a whole.

The NAO said it was sensible for the Revenue to have a dedicated team given the amount of tax at stake, but it called on the Revenue to do “more to identify the most effective approaches to maximising the tax revenue paid by the very wealthiest people in the UK”.

It said the Revenue was currently running a formal inquiry on about a third of high net worth taxpayers, with an average of four issues being examined per taxpayer. The £1.9 billion estimate of the tax that could be due related to more than one tax year, in a sign that inquiries often take a long time to resolve. There are 6,000 issues under inquiry that have been open for more than 18 months, 4,000 of which have been open for more than three years.

More than half of the disputed tax – £1.1billion out of £1.9billion – concerned tax avoidance schemes which were used by about 15 per cent of the individuals monitored by the unit.

Criminal investigations

Cases of evasion were unusual but normally involved “significant” sums of money, it said. In the past five years, the Revenue has investigated and closed 72 cases concerning tax fraud relating to wealthy individuals, raising £80 million in compliance yield including penalties. Two of the cases were criminally investigated, resulting in one conviction. The Revenue is criminally investigating a further 10 wealthy individuals.

About 40 potential cases involving wealthy individuals have been identified from the Panama Papers, the leaked data on the use of shell companies released earlier this year. While it is possible that the Revenue has already been told about the offshore assets in the leaked data, the cases are being investigated by staff in the high net worth unit and the fraud investigation service.

– Financial Times