Taxing the wealthy: HMRC does not know how many billionaires pay tax in the UK
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PAC warns of lack of clarity over how much tax is paid or avoided
by the very wealthy, as report highlights significant opportunities
to collect more revenue HM Revenue & Customs (HMRC)
cannot identify how much tax is paid by UK billionaires. In a
report on collecting the right tax from wealthy individuals, the
Public Accounts Committee (PAC) calls on HMRC to publish its plan
for increasing tax yield from wealthy taxpayers both domestically
and offshore. ...Request free
trial
HM Revenue & Customs (HMRC) cannot identify how much tax is paid by UK billionaires. In a report on collecting the right tax from wealthy individuals, the Public Accounts Committee (PAC) calls on HMRC to publish its plan for increasing tax yield from wealthy taxpayers both domestically and offshore. Despite UK billionaires making up a relatively small number of people and the significant sums of money involved, the PAC was disappointed to find that HMRC cannot use the wide range of data it uses to identify wealthy people to provide transparency about the tax paid by the wealthiest. A billionaire has wealth and assets 500x greater than a wealthy person who just meets HMRC's definition* of ‘wealthy', and so has huge potential on their own to affect how much revenue is available for public spending. The PAC is seeking HMRC's plan for improving its understanding of the wealth and assets held by billionaires, including how it might immediately start work on comparing available data on known billionaires, such as the Sunday Times Rich List, with its own records. HMRC's has done well to ensure wealthy taxpayers comply with tax rules brought in an additional £5.2 billion of tax revenue in 2023-24. This is a significant increase from £2.2 billion in 2019-20. However, the report notes that the scale of this success suggests either wealthy non-compliance has got worse, or that previous estimates of their tax avoidance were too low, and finds that HMRC needs to improve its assessment of the amount of tax that the wealthy avoid paying. The tax authority told the inquiry that the tax gaps* for wealthy people and for offshore wealth are particularly difficult to measure. Given these difficulties, and the deficiencies in HMRC's information on wealth, the PAC concerned that HMRC is overly confident and optimistic in its estimate that the wealthy tax gap is only £1.9bn. Its partial estimate of the offshore tax gap, of £0.3bn, seems far too low, particularly when compared with UK residents holding £849bn in offshore accounts in 2019. The PAC's report finds that in 2023-24, there were only 25 criminal prosecutions of wealthy people and 456 penalties (down from 1,747 in 2022-23). This is despite the average time HMRC takes to close an investigation increasing every year between 2018-19 to 2022-23. For investigations yielding more than £100,000, the average duration in 2023-24 was 40 months. The PAC finds it particularly disappointing that HMRC has issued no penalties to enablers of tax evasion, despite acknowledging unscrupulous advisers often play a key role in helping the wealthy evade tax, and recommends HMRC assess whether it is using its powers to tackle non-compliance by the wealthy sufficiently, in particular, whether it makes sufficient use of available sanctions. Lloyd Hatton MP, Member of the Public Accounts Committee, said: “This report is not concerned with political debate around the redistribution of wealth. Our Committee's role is to help HMRC do its job properly ensuring wealthy people pay the correct tax. While HMRC does deserve some great credit for securing billions more in the tax take from the wealthiest in recent years, there is still a very long way to go before we can reach a true accounting of what is owed. “We already know a great deal about billionaires living in the UK, with much information about their tax affairs and wealth in the public domain. So we were disappointed to find that HMRC, of all organisations, was unable to provide any insight into their tax affairs from its own data - particularly given that any single one of these individuals' contributions could make a significant difference to the overall picture. We found a similar apparent lack of curiosity in how wide the tax gap is both for the very wealthy and for wealth stashed away offshore. "Our report shows that, however you slice it, there is a lot of money being left on the table. HMRC must, under its new leadership, begin collecting the correct amount of tax from the very wealthiest - and this must include wealth that is currently squirrelled away in tax havens. There is certainly room for improvement. We hope that HMRC uses both our recommendations and the new funding it has secured in this area to do so.”
Notes to editors Since 2019-20, HMRC defines wealthy individuals as those with incomes of £200,000 or more, or assets equal to or above £2m, in any of the last three years. HMRC defines the tax gap as the difference between taxes theoretically owed to HMRC and those actually paid. HMRC defines compliance yield as the revenue collected or protected that would have otherwise been lost to the Exchequer if not for its interventions.
PAC report conclusions and recommendations HMRC has done well to increase compliance yield from wealthy individuals, but there are significant opportunities to collect more revenue and close the tax gap. The yield from HMRC's compliance work with wealthy individuals has more than doubled in recent years, with it collecting £5.2 billion in 2023-24, up from £2.2 billion in 2019-20. HMRC wants to reduce the tax gap and says that it is a constant endeavour for it to collect more tax from wealthy individuals. It says there are significant opportunities for it to go further and wants to ensure that its wealthy team has the enablers and capabilities it needs to be more effective and productive. HMRC has identified opportunities relating to data exchange, targeting and risking, collaborating globally with other tax jurisdictions, and policy changes that will help it close the tax gap. There are currently around 1,000 people in the wealthy team, and HMRC has secured funding for another 400 staff. It is aiming to secure at least an additional £500 million of yield from its work tackling wealthy offshore risks by 2029-30, as part of a broader target to bring in an extra £7.5 billion. Recommendation 1. HMRC should publish its plan for increasing yield from wealthy taxpayers domestically and offshore and set out timelines for achieving its objectives. Even among the wealthy population there are vast disparities in wealth and circumstance, making it likely that more tax is at risk for the wealthiest taxpayers. The population of wealthy taxpayers that HMRC's wealthy team administers is getting bigger, up from 700,000 individuals in 2019-20 to 850,000 individuals in 2023-24. HMRC treats wealthy individuals as one single group and its risk assessment process does not segment wealthy individuals according to levels of wealth. HMRC says that as people's propensity for risk will vary, it must consider other factors besides pure wealth, such as complexity and opportunity for non-compliance. It says it finds some billionaires have quite straightforward tax planning, while some millionaires with much lower wealth will have set up very complex offshore trusts and structures. But it is worth noting, for example, that the value of tax associated with a billionaire could be a hundred times greater than a high net worth individual (assets of £10 million or more), due to the difference in wealth. HMRC deploys its customer compliance managers according to those taxpayers who pose the most risk and says that these managers typically end up working on cases relating to individuals with wealth above £10 million. Nevertheless, HMRC acknowledges it needs to improve its data and risking and may need to make changes to its risk model. Recommendation 2.
HMRC cannot identify how much tax is paid by UK billionaires, despite the relatively small number of individuals and significant sums of money involved. HMRC can and must do more to understand and explain the contribution that the very wealthiest in society make to tax revenue. It has access to a wide range of internal and external data which it uses to identify wealthy individuals, but we are disappointed that it cannot use these data to provide some transparency about the tax paid by the wealthiest. HMRC argues that income and chargeable gains determine whether you pay tax, not whether you are a billionaire. HMRC does not collect information on taxpayers' wealth and says that it only collects the data needed to administer the tax system as required by UK tax legislation. A billionaire has wealth and assets 500 times greater than a wealthy individual who just meets HMRC's threshold for the wealthy population and so has huge potential on their own to affect the tax gap, and how much revenue is available for public spending. In the United States, the Inland Revenue Service has worked with researchers to link its data to the Forbes 400. HMRC has not facilitated a similar analysis with the Sunday Times Rich list. Recommendation 3. Alongside its Treasury Minute response, HMRC should write to the Committee with its plans for improving its understanding of the wealth and assets held by the wealthiest individuals, including billionaires. This should include:
There is much more that HMRC can do to improve its work to risk assess and target wealthy people, in particular through the use of data and technology and recruiting wealth management experts. HMRC says targeting its resources on more complex, higher-risk, higher yield cases, has resulted in higher average returns, increasing from £34,000 to £94,000 per case in the wealthy team. But the wealthy team closed 46% of its investigations with no yield at all in 2023-24. HMRC says it would like to reduce this number but explained that it does not know the facts until it opens an inquiry, when it may simply find that everything is lawful and in order. We think there is scope for HMRC to use artificial intelligence (AI) to better exploit and analyse data and, in this way, improve its risk assessment and targeting of wealthy individuals. Possible uses of AI to speed up the system include sifting large amounts of data and suggesting what information is missing from tax returns. HMRC agrees and expects new investment in AI, along with recruiting experienced tax specialists to help the wealthy team's understanding of wealth planning, to help it to better target its compliance activity so that, when it opens a case, it has a higher likelihood of securing the yield. Recommendation 4. Alongside its Treasury Minute response HMRC should write to the Committee to explain how confirmed funding to date will feed through to better compliance performance, and what it expects to achieve from future investment. This explanation should go beyond just the impact on compliance yield and should cover the expected impact on other performance measures, such as the proportion of cases that result in a positive return. HMRC should include in that letter further details of its plans to invest in new IT, as well as plans to ensure it has the right skills to undertake the data analysis necessary to risk assess and target wealthy people. Too many compliance investigations last too long, with too few leading to penalties and prosecutions. HMRC has different actions it can take against taxpayers who it identifies are at risk of not paying the right tax, including penalties, civil investigations into taxpayers suspected of fraud, and criminal investigations. The average time it took for HMRC to close an investigation increased every year over the period 2018-19 to 2022-23 and, for investigations yielding more than £100,000, the average duration in 2023-24 was 40 months. But in 2023-24, there were only 25 criminal prosecutions of wealthy individuals, and 456 penalties, down from 1,747 penalties in 2022-23. HMRC's current ambitions to increase prosecutions and penalties are underwhelming, given that its ambition for a 20% increase in the number of people charged with tax fraud would only mean another five cases annually for the wealthy population. It is particularly disappointing that HMRC has issued no penalties to enablers of tax evasion, despite acknowledging unscrupulous advisers often play a key role in helping the wealthy evade tax. We are also unconvinced that HMRC fully utilises the deterrent effect of publicising successful prosecutions, despite it acknowledging the value of publicising high value, high-profile cases. Recommendation 5.
It is not sufficiently clear how much tax is paid, and how much tax is avoided by the very wealthy, which restricts HMRC's ability to reassure the public that it administers the system fairly. Fairness is at the heart of HMRC's charter. It is important for confidence and trust in HMRC, which has been decreasing in recent years, that the public know the wealthiest are paying their fair share. We welcome the new Permanent Secretary's commitment to improving trust in the tax system, including examining opportunities to provide greater transparency regarding the amount of tax wealthy taxpayers pay and the contributions of different segments within the wealthy population. HMRC also needs to improve its assessment of the amount of tax that the wealthy avoid paying. HMRC says that the wealthy and offshore tax gaps are particularly difficult to measure. Given these difficulties, and the deficiencies in HMRC's information on wealth, we are concerned that HMRC is overly confident and optimistic in its estimate that the wealthy tax gap is only £1.9 billion. Its partial estimate of the offshore tax gap, of £0.3 billion, seems far too low, particularly when compared with UK residents holding £849 billion in offshore accounts in 2019. Internally, HMRC has identified a much larger amount at risk from all forms of offshore non-compliance. Recommendation 6. HMRC should consider how best to expand the range of information it publishes on wealthy individuals to give people greater confidence that these taxpayers pay their fair share. As part of this it should:
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