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The magnitude of tax exemption and avoidance by wealthy people could be far higher than the UK tax authorities previously thought, according to a report by the National Audit Bureau.
The wealthy people, defined by HM Revenue & Customs as those earning more than £200,000 or more of assets per year, paid £119 million in 2023-24, and averaged £140,000 per person. This total represents 25% of UK personal tax receipts.
However, the complexity of the problems of most wealthy people made it more difficult for HMRC to identify the tax they owed, and intentionally presented them with opportunities to avoid paying the right amount, the NAO warned. Report on friday.
The report stated that between 2022-23, the HMRC estimate of the “tax gap” between this cohort was only £1.9 billion in differences between the amount of taxes paid and what was actually paid.
However, it has since been found that HMRC doubled the annual “compliance yield” from wealthy individuals from 2019-2 billion £2 billion in 2023-24. This term refers to the tax revenues collected by HMRC for its work to ensure compliance.
The figures showed that HMRC had collected more taxes than previously thought possible, according to the report.
The NAO report states, “This could result in a much greater level of non-compliance among the wealthy population than previously thought.”
Despite the growing population of the wealthy, the number of criminal prosecutions for unpaid taxes and HMRC penalties issued to the wealthy has declined in recent years, the report added.
NAO Head Gareth Davies said HMRC deserves credit for significantly increasing the additional tax revenues that compliance has brought from wealthy taxpayers.
However, he added: “This could indicate a higher level of compliance than previously estimated. HMRC should try to provide the public with greater transparency that all taxpayers are contributing to fair share.”
The report also addressed issues regarding tax evasion and avoidance by wealthy people with overseas assets. NAO said it recognizes HMRC as a significant risk.
According to the report, HMRC said General estimates £300 million in tax revenue was lost on this route in 2018-19, the most recent year available, and did not earn a full tax potential amount.
The report noted that UK tax residents held £849 billion in offshore accounts in 2019. “Internally, HMRC has identified far more taxes from all forms of offshore noncompliance, but has not published this figure.”
Meanwhile, the tax office had set up only a “limited strategy” to address tax evasion and avoidance by the wealthy people, Nao said.
In the fall budget, the government has funded 5,500 HMRC compliance staff over the next five years, the report said. However, he said the tax office still doesn’t have a clear plan to ensure that the team can acquire the skilled staff they need.
Among the several recommendations, the report called on the HMRC to develop a “clear strategic vision and planning,” address wealthy compliance, and develop a “clear strategic vision and planning” to “provide sufficient transparency to give greater confidence.”
Caitlin Boswell, head of advocacy and policy for campaign group Tax Justice UK, noticed a growing gap between the taxes owed by the wealthiest people and what they actually paid.
“That’s because of something like a secret offshore tax haven used to hide assets that are not monitored by tax authorities,” she said.
She also denounced issues surrounding the use of rich tax personnel to exploit “loop holes within the system.”
HMRC said it is an obligation to ensure that the correct taxes are paid under the law “regardless of wealth or status.”
“The government is offering the most ambitious package of all time to fill an additional £7.5 billion in public services annually by 2029-30.”
