Regulation  

HMRC poised for further high net worth tax crack down

HMRC poised for further high net worth tax crack down

A crackdown on tax avoidance by HM Revenue & Customs is likely to be extended, according to law firm Pinsent Mason, after it netted the government an extra half a billion pounds.

HMRC collected an additional £494m worth of income tax in 2014 to 2015 through investigations into tax avoidance schemes, according to a Freedom of Information request by the law firm.

Advisers and accountants should beware this success, Pinsent Masons’ tax director Paul Noble said, as it is likely to spur the government’s tax office to extend its crack down this year,

“High-net worth individuals and other wealthy taxpayers are likely to face further scrutiny as a result - both here and abroad,” Mr Noble said.

“Whilst these particular cases constitute a small proportion of the total sum of unpaid tax uncovered each year, they often provide a focal point of public interest - rendering them a real priority area for HMRC.”

Since 2012, following media coverage of tax avoidance schemes by celebrities, HMRC stepped up its investigations into such activity, targeting actors, musicians, sports stars and comedians.

The Counter Avoidance Directorate was created in April 2014 with the primary objective of cracking down on the promotion and use of avoidance schemes. Later that year HMRC also published a list of arrangements it running contrary to its rules.

It introduced a range of tough powers to find and demand disputed tax, including the controversial accelerated payment notices, which require upfront payment of the tax under question within 90 days where use of an avoidance scheme is suspected.

“HMRC has been and continue to be granted huge new powers to help them close and clear the many thousands of open avoidance cases,” Mr Noble said.

“HMRC needs to ensure it makes use of some of its new and more contentious tools in a reasonable way - and focuses on activity which constitutes real abuse.”

In March, Pinsent Masons revealed HMRC had seen a surge in returns from investigations into the tax affairs of high net worth individuals. Over the past year it returned a yield of £29 for every £1 spent on investigations into wealthy earners, up 60 per cent from the £18 yield per £1 spent in 2014.

The high net worth unit, which covers 6,000 individuals with a net worth of £20m or more, collected a total of £414m in extra revenue over 2014/15, up from £268m in the previous year.

However, a report from the Committee of Public Accounts concluded not enough is being done by HMRC to tackle tax fraud, stating “only limited progress” has been made in reducing the level of losses through the crime, which has been “relatively constant” over the last five years.

Tax avoidance and evasion has been back in the spotlight recently due to the ‘Panama papers’ leak of documents relating to offshore dealings with a particular law firm. The Financial Conduct Authority has sent information requests to 64 implicated firms so far, but refused to be drawn on its preliminary findings.