MPs disappointed at absence of information on billionaire taxpayers

Above: The PAC held a hearing with HMRC bosses as part of this inquiry. We reported on it here. 

The report indicates that in 2023–24, HMRC’s efforts to ensure wealthy individuals comply with tax rules brought in a record £5.2 billion, up from £2.2 billion in 2019–20. However, the committee argue, “the scale of this success suggests either non-compliance among the wealthy has got worse, or that previous estimates of the extent to which they were avoiding tax were too low”.

The report suggests that HMRC’s lack of an overview of an individual’s total wealth makes effective risk assessment difficult. Though it has secured funding to hire more staff and invest in AI and data tools, challenges remain, especially in tracking offshore wealth, the PAC suggest. The report observes that 46% of wealthy investigations closed with no yield in 2023–24, and just 25 led to prosecutions.

People need to know that the wealthy are paying their fair share, the report says, welcoming HMRC’s commitment to be more transparent to Parliament and to build trust in the tax system. It also argues that the inherent difficulties in estimating wealthy and offshore tax gaps mean HMRC should be far more “circumspect in its assessment of the overall level of non-compliance”.

The report provides a number of conclusions and recommendations from its findings, including:

• HMRC should publish a plan with timelines for increasing tax yield from wealthy taxpayers
• HMRC should provide the committee with a plan for improving its understanding of the wealth and assets held by billionaires
• HMRC needs to improve its assessment of the amount of tax that the wealthy avoid paying

Full set of recommendations

Conclusion: HMRC has done well to increase compliance yield from wealthy individuals, but there are significant opportunities for HMRC to collect more revenue and close the tax gap.

Recommendation: HMRC should publish their plan for increasing yield from wealthy taxpayers domestically and offshore and set out timelines for achieving their objectives.

Conclusion: HMRC treat wealthy individuals as one single group, and its risk assessment processes do not segment wealthy individuals according to levels of wealth. HMRC say that as people’s propensity for risk will vary, they must consider other factors besides pure wealth, such as complexity and opportunity for non-compliance. HMRC deploy their customer compliance managers according to those taxpayers who pose the most risk.

Recommendations: As part of their plan for increasing yield from wealthy taxpayers domestically and offshore, HMRC should review whether segmenting their wealthy customer group according to different levels of wealth and complexity would help them to assess and then target the most significant risks. As part of their consideration, HMRC should estimate the value of tax at risk within the wealthy taxpayer base and write to the committee with the results.

Conclusion: HMRC do not collect information on taxpayers’ wealth and say that they only collect the data needed to administer the tax system as required by UK tax legislation. The PAC say that HMRC “can and must do more” to understand and explain the contribution that the very wealthiest make to tax revenue. HMRC has access to a wide range of internal and external data which it uses to identify wealthy individuals, but the committee is disappointed that HMRC “cannot use these data to provide some transparency about the tax paid by the wealthiest”.

Recommendations: 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:

• Work it can implement straightaway on comparing available data on known billionaires, such as the Sunday Times Rich List, with its own records.
• The steps it will take to request more data on assets and wealth from those taxpayers it suspects have high or very high levels of wealth, taking into account that any additional administrative burdens on the very wealthiest are likely to be perfectly manageable given their resources.
• Work it will undertake, and associated timeframes, to better understand the links between personal wealth and connected entities, including complex trusts and structures.

Conclusion: 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. The committee believes there is scope for HMRC to use artificial intelligence to better exploit and analyse data and, in this way, improve its risk assessment and targeting of wealthy individuals.

Recommendation: 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.

Conclusion: Too many compliance investigations last too long, with too few leading to penalties and prosecutions. HMRC’s current ambitions to increase prosecutions and penalties are “underwhelming” and it is “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”.

Recommendations: HMRC should 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. HMRC should investigate and report back to the committee on why it has not been able to issue any penalties to enablers of tax evasion, and how it plans to start using them as an effective sanction and deterrent. HMRC should show more ambition for the number of prosecutions of wealthy individuals evading tax, given its current plan is to increase the number charged each year by only five by 2029–30.

Conclusion: 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. Given the deficiencies in HMRC’s information on wealth, the committee is concerned that HMRC are “overly confident and optimistic” in its estimate that the wealthy tax gap is only £1.9 billion.

Recommendations: HMRC should consider how best to expand the range of information it publishes on wealthy individuals. As part of this, it should:

- Set out statistics on the amount of tax paid by wealthy individuals in relation to top-down estimates of levels of wealth and chargeable gains. HMRC should report this for the wealthy population as a whole and, as far as possible, for different levels of wealth.

- Write to the committee to outline its plans and timescale to improve its estimate of the wealthy tax gap.