Singalonga taxman as HNWIs targeted to boost tax take

Thursday, April 21, 2011 | Posted by: Dave Jennings
Categories: Protecting your wealth | Tags: tax, Dave Jennings, HNWI, Protect Your Wealth, investigation, amnesty, domicile, offshore assets, evasion, HNWI unit, PTSP, avoidance, High Net Worth Unit, Plumbers Tax Safe Plan

Ready to rock ‘n’ roll with HM Revenue & Customs’ punches? Dave Jennings, our tax investigations expert, tells the tale of how wealthier taxpayers are being targeted.

‘Money’s too tight to mention’
The 50% tax rate, introduced by the Finance Act 2010, is by no means the only way in which wealthier taxpayers will be targeted in HM Revenue & Customs’ (HMRC’s) quest to increase the tax take and boost Government finances. HMRC is also beginning to tailor its compliance activities to ensure that those with significant assets and substantial incomes are paying the correct amount of tax.

With a £156 billion hole in the nation’s finances to plug, and official estimates putting the annual ‘tax gap’ – between what should be collected and what actually is collected – at around £42 billion, it isn’t difficult to see why HMRC is under significant pressure to increase tax revenues.

‘’Cause I’m the taxman’
In September 2010, Danny Alexander, Chief Secretary to the Treasury, announced that an additional £900 million would be made available to tackle both those who evade tax and those who use loopholes to reduce the amount of tax they pay. He also announced that there would be a fivefold increase in the number of taxpayers prosecuted for tax offences each year.

But, as we are all aware, the public finances are stretched, and many departments are being asked to make savings – and HMRC is not immune from this process. Last June, for example, I wrote about the effect a squeeze on the public sector would have on HMRC and how this would affect the way the department operates.

But how does this drive for cutbacks reconcile with the corresponding pressure on HMRC to increase its yield and crack down on those who aren’t complying with their tax obligations?

‘More, more, more’
Put simply, HMRC will be expected to achieve more for less. Evidence of this has already been seen with the launch of a number of targeted amnesties, such as the Plumber’s Tax Safe Plan, which I discussed in my last blog post, and the Liechtenstein Disclosure Facility.

‘Gimme shelter’
Amnesties work well as they allow HMRC to bring those non-compliant taxpayers it is targeting in from the cold without incurring significant costs.

Amnesties, however, aren’t the only weapon in HMRC’s arsenal and there is evidence of an increasingly targeted approach to tax investigation and enquiry work being undertaken.

‘The tax man’s taken all my dough, and left me in my stately home’
So why are High Net Worth Individuals (HNWIs) of particular interest to HMRC? Owing to the level of income that HNWIs have, and the wide variety of sources from which this is earned, their tax affairs are often complex, and HMRC believes that there is a risk that some of the tax due from these individuals may slip through the net. HMRC is therefore keen to engage closely with HNWIs in order that they prevent this from happening.

As a result, the High Net Worth Unit was launched in 2009 as a replacement for the Complex Personal Tax Team.

‘Getting to know you, getting to know all about you’
The aim of the new unit is to develop HMRC’s relationship with around 5,000 taxpayers who are worth in excess of £25 million and, according to HMRC’s Departmental Report 2009, “communicate with them, influence their behaviours and provide a more robust evidence base for policy decisions and assessment of their tax liabilities”.

Those falling within the criteria to have their tax affairs dealt with by the High Net Worth Unit are assigned one of the approximately 30 customer relationship managers that operate within the unit, and are invited to meet with them in order that HMRC can gain a better understanding of their affairs, and hopefully reduce the risk of any tax being lost.

‘Leaving on a jet plane’?
HMRC’s particular areas of concern in relation to HNWIs are:

• Offshore assets and bank accounts
• Individual’s residence and domicile status
• Undeclared earnings

So, two years on, how is HMRC progressing with its ambitions for the High Net Worth Unit? Recent figures suggest that so far it has been an enormous success for HMRC, yielding £85 million in its first year, compared with around £25 million annually by its predecessor.

‘Can’t take my eyes off of you’
HMRC will be hoping that this continues. In turn, HNWIs can expect increased scrutiny of their tax affairs over the coming months and years if HMRC is to meet the target it has been set of increasing the tax take by £7 billion by 2014/15 through targeting tax avoidance and tax evasion.

A final important point to bear in mind is that HMRC now has the power to ‘name and shame’ those who are found to have underpaid more than £25,000 in tax.

Image: © Sudhamshu Hebbar

If you are concerned about being targeted by HMRC or need advice about your personal tax, contact us with your query or read more on our Tax Investigations page

You might also find these posts useful:

* Read more posts by Dave Jennings, tax investigations specialist
* Our guide to the 2011 new tax year (it’s bad news for HNWIs)
* Retiring abroad could be more taxing than you think