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September 2, 2019updated 25 Sep 2019 5:33pm

Taxman squeezes another £700m from super-rich investigations

By Arun Kakar

The tax take from ‘wealthy individuals’ investigated by HMRC surged by 58 per cent in 2018/19, according to a report from law firm Pinsent Masons, writes Arun Kakar

Thanks to an ‘increased willingness’ from the taxman to investigate and prosecute – and a continuing use of ‘the stick over the carrot when pursuing wealthy individuals’ – HMRC’s yield from investigations in the wealthiest individuals rose from £1.2 billion in 2017/18 to £1.9 billion in the last tax year.

The 58 per cent rise comes as new global data sharing agreements enable HMRC to ‘identify cases and complete investigations more quickly’, according to law firm Pinsent Masons, which published the figures. The firm also pointed to data leaks such as the Panama Papers as a ‘key source’ of evidence for HMRC’s investigations. Investigations following the leaks have yielded an additional £190 million for HMRC, it said, with a further 215 cases still underway.

‘The surge in yield from investigations may also reflect HMRC’s multi-faceted approach to compliance amongst wealthy individuals,’ says Chris Porter, a partner at the firm. ‘Data is used to cross-check returns and sometimes letters are simultaneously pumped out asking individuals to confirm information they don’t need to confirm – mistakes can easily be made which can leave taxpayers exposed to investigations.’

Pinsent Masons, an international firm, added that efforts to improve efficiency from HMRC have been aided by the Common Reporting Standard (CRS), the new global standard with the Automatic Exchange of Information which covers more than 100 jurisdictions. In 2018, CRS flagged the accounts of three million UK taxpayers, according to Pinsent Masons.

Porter also pointed to HMRC’s Connect database system and its ability to gather information from an increasingly wide range of sources. ‘Connect can now cross reference up to 22 billion lines of data including tax returns, property and financial data,’ he notes.

The figures might be startling, but they need to be put into context, says James Quarmby, head of private wealth at Stephenson Harwood and a Spear’s top ten tax lawyer.

‘None of this is very surprising,’ he tells Spear’s, given the narrowing of the ‘tax gap’ – the difference between total amount of taxes owed to the government versus how much they received – is ‘pretty low’ by international standards. The taxman collected 94.4 per cent of all tax due according to the latest figures for 2017/18, leaving a total theoretical liability of almost £35 billion.

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In addition, Quarmby says that there has been a ‘change in policy of putting more effort into investigating high earners’ through actions like ‘nudge letters’. The letters, based on CRS, are reportedly sent to individuals suspected to have offshore income and gains that could be liable to UK tax. ‘If you spend effort targeting someone who is in the top one per cent of taxpayers, you’re more likely to get a better outcome than targeting someone who is on PAYE,’ adds Quarmby. ‘Their targeting is smarter.’

The figures are not so much to do with the Panama papers either, it seems. ‘What has made a massive difference is the exchange of information protocols we’ve entered into with the EU and latterly the Common Reporting Standard.’

CRS, he added, has become a ‘real jackpot’, along with the requirement to correct, legislation brought in last year that obliges UK taxpayers with overseas assets to correct issues with their historic UK tax position. Taxpayers were expected to take steps to ‘correct’ their UK tax position by the end of September last year, or else face ‘Failure to Correct’ measures including a ‘tax geared penalty’ of between 100 and 200 per cent. The prospective penalties led to a surge of clients registering to seek advice quickly in order to comply, he added.

Quarmby agrees with the sentiment of the Pinsent Masons that the HMRC is putting the stick before the carrot. ‘There used to be some carrot and a bit of stick but now it seems there’s a national shortage of carrots in HMRC offices and its gone all stick now,’ says Quarmby.

Read more

UK non-doms ‘remaining resilient and less sensitive to tax change’

Inside Corybn’s tax plans: what you can do to prepare

Why we can expect more Swiss Leaks-style prosecutions in the UK

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