A report from the National Audit Office found that the scale of tax avoidance and tax evasion for the rich may be much higher than the UK tax office had previously thought.
Wealthy people, by HM income and custom, are defined as those who earn more than £200,000 per year or assets exceeding £2 million, paid £119 billion in personal taxes in 2023-24, an average of £140,000 per person. This amount accounts for 25% of UK personal tax revenue.
But the complexity of most wealthy people's affairs makes it difficult for HMRC to determine the tax they owe and deliberately provide them with opportunities to avoid paying the right amount, the NAO warned in a report on Friday.
The report said that in 2022-23, HMRC's estimate of the "tax gap" in this cohort - the difference between the taxes to be paid and the taxes actually paid - was only £1.9 billion.
However, it was found that HMRC then doubled the annual "compliance gains" for the rich, increasing from £2.2 billion in 2019-20 to £5.2 billion in 2023-24. The term refers to the taxes collected by HMRC because it works to ensure compliance.
The report shows that HMRC collects more taxes than previously thought.
"This increases the possibility that the basic non-compliance level in the affluent population may be much greater than previously thought," the NAO report said.
Despite the growth of the population with affluent population, the number of criminal prosecutions for taxation of the rich and HMRC penalties has declined in recent years.
NAO chief Gareth Davies said the HMRC deserves credit for its significant increase in the additional tax revenue it brings from wealthy taxpayers.
But he added: "This may indicate that the level of non-compliance is higher than previously estimated. HMRC should also seek greater transparency to allow all taxpayers to contribute their fair share and give the public more confidence."
The report also addresses issues for wealthy people involved in tax evasion and avoiding assets, which NAO says HMRC has viewed as a key risk.
The HMRC public estimates that the route (in the last year) lost £300 million in tax revenue in 2018-19 and did not fully capture potential lost taxes.
The report noted that UK tax residents held £849 billion in taxes in their maritime accounts in 2019. It added: "Internally, the HMRC has determined that the risk tax rate from all forms of offshore non-compliance is greater, but has not released that number."
Meanwhile, the tax office has developed only a "limited strategy" to address tax evasion and avoid tax avoidance for the rich, NAO said.
The report notes that on the fall budget, the government has provided funding for an additional 5,500 HMRC compliance personnel over the next five years. However, it said the Revenue Agency has not yet had a clear plan to ensure the team gets the skilled staff they need.
Among several recommendations, the report calls on the HMRC to develop a “clear strategic vision and plan” to deal with affluent violations and to provide the public with “sufficient transparency with greater confidence”.
Caitlin Boswell, head of UK's advocacy and policy at the campaign organization UK's tax justice, pointed out that the taxes owed by the richest people are getting bigger and bigger.
"This is because, for example, Secret Syper-Saves, used to store assets that tax authorities have not supervised," she said.
She also accused the issue of being attributed to the use of tax agents to exploit “the vulnerability in the system.”
HMRC said it is their responsibility to ensure that everyone pays the right taxes according to the law, “regardless of wealth or status.”
It added: “The government is offering the most ambitious programme ever to close the tax gap and bring an additional £7.5 billion to public services annually by 2029-30.”