HMRC does not know how many billionaires pay tax in the UK

The Public Accounts Committee (PAC) has released a long-awaited report on HMRC and collecting the right tax from individuals. It finds that HMRC isn’t able to accurately assess how much tax billionaires pay in the UK, with the tax authority lacking the ability to use the data it has to paint a clear picture of how much tax the very wealthiest pay.

Furthermore, given the vast number of wealthy people (700,000 included in HMRC’s definition of the wealthy) and the disparity between those at the bottom and top of that range, it is likely that more tax is at risk from the wealthiest tax payers.

The PAC report also notes that HMRC’s successes in generating increased yield from tax non-compliance suggests that 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. In addition, the report states that too many compliance investigations last too long, with too few leading to penalties and prosecutions.

Of course, all this is against a backdrop of the government and media painting disabled and non-working people committing benefit fraud as the problem when it comes to public finances.

HMRC: no idea how much tax billionaires pay

Despite UK billionaires making up a relatively small number of people and the significant sums of money involved, the PAC said it was “disappointed” to find that HMRC cannot use the wide range of data it has to identify wealthy people to provide transparency about the tax paid by the wealthiest.

A billionaire has wealth and assets 500-times greater than a wealthy person who just meets HMRC’s definition of ‘wealthy’. Therefore, they have huge potential on their own to affect how much revenue is available for public spending.

HMRC’s work 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 PAC 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. The PAC said HMRC needs to improve its assessment of the amount of tax that the wealthy avoid paying.

HMRC told the inquiry that the tax gaps for wealthy people and for offshore wealth are particularly difficult to measure. Yet it has done little to compare external data with its own – like the Sunday Times Rich List.

Given these failures, and the deficiencies in HMRC’s information on wealth, the PAC said it is 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.

Barely fit for purpose?

The 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 said it 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.

PAC member Lloyd Hatton MP said:

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.

Overall, the PAC is seeking HMRC’s plan for improving its understanding of the wealth and assets held by billionaires. This must include 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: must do better

Fariya Mohiuddin is the interim Deputy Director at Tax Justice UK. The group gave evidence to the PAC as part of its inquiry. Mohiuddin said:

If HMRC isn’t able to tax the super-rich fairly, how can anyone have faith in a system that seemingly has one set of rules for the wealthiest, and another for everyone else. At the heart of this story is the urgent need for HMRC to have the resources and political backing for it to be an effective and efficient tax authority that can administer a tax system that is fair and fit for the 21st century.

With millions waiting for healthcare treatment to essentials being unaffordable for many, HMRC needs to be able to collect the right tax from the super-rich. Failing to do so lets money be squirreled away into tax havens like some of the British Overseas Territories which deprives our communities, hospitals and schools of the cash they need.

The government must give HMRC backing by investing in it for the long-term, to make the system fair, and ensure British tax havens implement transparency measures to prevent offshore hoarding of wealth.

Featured image via the Canary