Sinead Moore 27 Jan 2017 04:14pm

PAC warns HMRC needs to step up approach to super rich

The Public Accounts Committee has criticised HMRC for failing to pursue the wealthiest taxpayers in the UK, despite setting up a specialist unit to unsure these individuals are paying their fair share of tax

HMRC’s unit dedicated to collecting tax from “high net worth individuals” - those with wealth of more than £20m – was set up in 2009, with a customer relationship manager assigned to each high net worth individual to administer their tax affairs and ensure these individuals are paying the correct amount of tax.

However, the amount of tax paid by this wealthy group of around 6,500 individuals has actually fallen by £1bn since the unit was set up - £4.4bn in 2009/10 to £3.5bn in 2014/15.

The committee of MPs raised concerns when HMRC could not explain why income tax receipts from high net worth individuals has fallen by £1bn since 2009/10, while income tax from all taxpayers has increased by £23bn over the same period.

They also questioned the role of the customer relationship manager, highlighting that meetings and phone calls with high net worth individuals are not recorded and adding there is not enough clarity about what customer relationship managers can and cannot do.

The report also found that HMRC has enquiries open into about a third of all high net worth individuals at any one time, and is currently investigating cases with a potential value of £1.9bn, a figure the committee described as “alarming”.

With average penalties of £10,500 issued by HMRC to wealthy individual, the PAC questioned whether this acts as a big enough deterrent to those who engage in tax evasion and avoidance, “particularly as avoidance is moving from off the peg marketed tax avoidance schemes to complex bespoke schemes”.

MPs questioned HMRC’s strategy for dealing with the super rich and warned that the Revenue’s lack of transparency has eroded public trust in a fair tax system.

The committee urged the authority to publish more information about its work and explain how income tax receipts have fallen by £1bn for high net worth individuals while income tax paid overall has increased by £23bn.

MPs also called on the government to take urgent action against those who exploit taxation rules for image rights, particularly those in the sports and entertainment industry.

“HMRC is hampered by not having the power to demand more information about what assets high net worth individuals hold, and by the way certain tax rules have been set and interpreted, such as the complex rules on image rights,” the report said.

The committee urged HMRC to seek new powers to help it improve its understanding of the very wealthy, and formally evaluate the effectiveness of the high net worth unit.

“HMRC needs to be tough, and be seen to be tough, on tax avoidance and evasion, to ensure that everyone, particularly the very wealthy, pays their fair share of tax,” the committee said.

The Committee set out measures to enable HMRC to improve tax collection and "give the public greater confidence that there is not one set of rules for the rich and another for everyone else".

“By being more transparent about its work, seeking new powers where necessary, and delivering on its plans to get tougher with those who break the rules, HMRC could collect more cash and must do more to give the public greater confidence that there is not one set of rules for the rich and another for everyone else,” MPs said.

A spokesperson for HMRC said, “The vast majority of people in the UK pay all the tax they owe and today the top 1% of earners pay more than quarter of all income tax.”

The spokesperson added, “There is absolutely no special treatment for the wealthy, and in fact we give them additional scrutiny, with one-to-one marking by HMRC’s specialist tax collectors, to ensure that they pay everything they owe, just like the rest of us do.

“We have secured an additional £2.5bn from the very wealthiest since 2010,” the Revenue’s spokesperson said.

“The NAO commends this approach as being in line with international best practice and confirms that HMRC has increased the amount of tax we collect or secure from the very wealthy that would have otherwise gone unpaid.”