Unlock Editor’s Digest for free
Roula Khalaf, editor-in-chief of the FT, selects her favorite stories in this weekly newsletter.
The number of people in the UK who admitted not paying tax on their overseas assets jumped by almost a quarter in 2023-24, government data shows.
A total of 5,643 people admitted not paying enough tax on their foreign assets to HM Revenue & Customs, compared to 4,630 in 2022-23 – an increase of 22 per cent – according to data obtained in the part of a request for access to information.
The government has promised to raise billions of pounds by tackling tax evasion and evasion, with HMRC the budget provides funding for 5,000 additional compliance officers.
Tax experts said the increase in tax evasion revelations was due to several factors. These include HMRC sending more warning letters, receiving data from more countries on people’s offshore affairs and increasing awareness of public to its data sharing.
“HMRC’s aggressive pursuit of tax evaders now leaves very few places to hide,” said Graham Caddock, director of tax investigations at Lubbock Fine, the consultancy which issued the FOI request.
He added that the tax authority “makes good use of the information it receives from foreign jurisdictions, verifying tax returns and…”. . . its database to search for those who avoid HMRC altogether.”
Since 2018, international rules have led to the automatic exchange of financial account information between tax authorities. These agreements, developed by the OECD and known as the Common Reporting Standard (CRS), have been signed by 120 countries.
Participating countries include popular tax havens such as Switzerland, Bermuda, the British Virgin Islands and the Cayman Islands. At the same time, from 2027, the information sharing program will be extended to crypto asset exchanges.
HMRC uses algorithms to identify anomalies between offshore data records and its data on UK residents. The system then generates “nudge letters” that are sent to individuals when discrepancies are detected.
Dawn Register, tax dispute resolution partner at BDO, an accountancy firm, said she suspected the information HMRC was currently receiving was “more accurate and subject to further analysis”. . . using sophisticated AI technology.”
This greater analytical power was likely one of the factors behind an increase in tax filings.
“Awareness and education around the CRS and tax reporting has encouraged more people to come forward and update their UK tax situation,” she added.
Individuals can disclose unpaid taxes on overseas assets using HMRC’s online global disclosure service.
The maximum penalty for non-disclosure of offshore income is up to 200 percent of the tax owed and, in the most serious cases, is punishable by imprisonment.
Making a disclosure after receiving a nudge letter “significantly reduced” the risk of sanctions, Caddock said.
HMRC estimates that the tax gap – the difference between what it expected to collect in tax and what is paid – was £39.8 billion in 2022-23, of which around £5.5 billion would have probably been lost specifically because of tax evasion.
HMRC estimated, in data published earlier this year, that the under-reported tax liability of people resident in the UK with overseas income was around £300 million in 2018-19. The analysis found that around 4 per cent of this group had under-reported their tax liability to HMRC.
