Wealthy individuals in Britain could be avoiding more tax than thought, the government’s spending watchdog has said, after a dramatic fall in the number of penalties being issued to the super-rich.
In a report urging ministers to redouble their efforts to secure more of the money owed by wealthy people to the exchequer, the National Audit Office (NAO) said billions of pounds was going unpaid each year.
It said HMRC had greatly increased the additional tax revenue it was collecting from wealthy individuals by tackling non-compliance, but additional steps were required to ensure rich people paid their fair share.
It comes as Rachel Reeves, the chancellor, faces renewed pressure to find extra money for public services and defence, amid warnings that she could be forced to raise taxes in the autumn budget.
Nick Williams, an ex-No 10 senior economic adviser, who left his post last month, said on Thursday Reeves’s spending plans were “not credible” and needed to be reassessed. He wrote in the Times: “The bottom line is that taxes will have to go up.”
Labour has faced calls from trade unions and leftwing MPs to target wealthy individuals with higher taxes amid tight constraints on the public finances, as the chancellor prepares to deliver next month’s spending review.
According to the NAO report, billions of pounds in additional revenue could be collected from wealthy individuals. It said the annual “compliance yield” from well-off taxpayers – the revenue HMRC collects after chasing for non-payment – more than doubled from £2.2bn in the 2019-20 financial year to £5.2bn in 2023-24.
However, it said this rise was more than £1bn greater than the “wealthy tax gap” estimated by HMRC, which, it said, “raises the possibility that underlying levels of non-compliance among the wealthy population could be greater than previously thought”.
HMRC calculated the tax gap for wealthy individuals – the difference between the amount of money it estimates it is owed and how much is collected – at £1.9bn for the financial year ending in March 2023.
Highlighting the scope for a further crackdown, the NAO said the super-rich had faced far fewer penalties for non-compliance in recent years.
HMRC issued 456 penalties worth £5.8m to wealthy taxpayers in the financial year ending in March 2024, a decline of more than 75% from 2,153 penalties in 2018-19, totalling £16.2m.
Labour announced a number of tax increases targeted at wealthier individuals in the autumn budget, including replacing the non-dom tax regime, increasing capital gains tax, and charging VAT on private school fees.
Critics on the free-market right argue the changes have triggered an exodus of millionaires from Britain, but those on Labour’s left say the government could go further instead of targeting welfare cuts at the poorest in society.
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According to the NAO report, the population of wealthy individuals that HMRC oversees has grown from 700,000 in 2019-20 to 850,000 in 2023-24.
Defined as those earning more than £200,000 a year or with assets of more than £2m, wealthy individuals paid £119bn in personal taxes in 2023-24, contributing 25% of total personal tax receipts.
HMRC has a team of 910 staff focused on compliance by wealthy people, although it disbanded a dedicated unit targeting those with assets above £10m in 2017. However, ministers provided additional funding for the tax office in the autumn budget, including provision to tackle wealthy offshore non-compliance and fraud.
Gareth Davies, the head of the NAO, said: “HMRC deserves credit for greatly increasing the additional tax revenue its compliance work has brought in from wealthy taxpayers, however this may indicate that levels of non-compliance are higher than previously estimated.
“HMRC should also seek to provide greater transparency to give greater confidence to the public that all taxpayers contribute their fair share.”
A spokesperson for HMRC said: “It’s our duty to ensure everyone pays the right tax under the law, regardless of wealth or status. The government is delivering the most ambitious ever package to close the tax gap and bring in an extra £7.5bn for public services per year by 2029-30.”
Source: theguardian.com
