Taxation is a big problem in the UK. It is made worse by two issues. The first is the overtly complex nature of tax in the UK and the second is the scale of tax evasion by companies, corporations and individuals.
Don’t forget that tax evasion means concealing income or information from tax authorities, which is illegal, whereas tax avoidance means legally reducing your taxable income.
The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid. The tax gap in the UK is estimated to be well over £100 billion. HMRC defends itself by stating that that sum is about £30 billion.
To be fair to HMRC, they are woefully understaffed. However, it has just admitted that it has no idea how much tax is being evaded by UK residents holding money offshore after new figures revealed hundreds of billions of pounds was held in tax havens.
Freedom of information requests ended up with HMRC being ware that UK residents had £850bn in financial accounts overseas – of which £570bn was based in tax havens.
The figures come from financial data that has been shared with HMRC by more than 100 countries since 2017, under international rules known as the Common Reporting Standard (CRS).
But when asked if HMRC had used the CRS data to estimate what proportion of UK residents had properly reported their overseas accounts, HMRC said it had not.
“We have not produced or received any estimates, analysis or statistical information as to what proportion of the foreign financial accounts have been ‘properly disclosed’, nor can this be accurately inferred in the data we hold,” HMRC said in its replies to the FOI requests.
Obviously, some account information shared under the CRS was not taxable in the UK. There are many ex-pats, resident abroad who, quite legally use banks in tax havens. For instance, HSBC link individuals’ accounts in any country they operate in – and so it seems perfectly reasonable to earn money in one jurisdiction and pay savings into another – if no tax was due. Many ex-pats are subject to income tax in the country they work. It is important to make the distinction between multi-millionaires and billionaires that are actively evading the tax authorities and people quite legally working and saving money from legitimate earnings.
However, tax experts criticised HMRC’s stance, warning it sent the wrong message to people seeking to evade tax.
Arun Advani, an assistant economics professor at the University of Warwick said – “It highlights the resourcing constraints HMRC are under.” Given the £850bn held offshore represented around 6 per cent of the UK’s total net household wealth of £14.6tn, HMRC should be doing more to check it.”
Alex Cobham, chief executive at the Tax Justice Network, a pressure group which campaigned for the CRS for years before its introduction, criticised HMRC for “an outright dereliction of duty”. Senior tax lawyer Jolyon Maugham said “the disinclination of HMRC to take a proper interest in the deep pools of offshore money held by the mega-rich is, I am afraid, a longstanding problem and one that requires some explaining”.
HMRC rejected claims it was not using or checking the data, saying it used CRS data to “systematically compare” it to UK tax records and information, before deciding what compliance response to take.
HMRC added that some of the UK residents’ accounts may be owned by people who are non-domiciled in the country and therefore not subject to UK tax. But it could not give a percentage as to how many of the 1.2mn accounts in tax havens in 2019 were owned by non-doms. Tim Stovold, a partner at accountancy firm Moore Kingston Smith, said he suspected most of the accounts in tax havens were held by non-doms, adding that the UK regime “positively encouraged people to keep money overseas”.