Wealthy Britons May Be Avoiding More Tax Than First Thought

Wealthy individuals across Britain may be dodging more tax than previously estimated, as revealed by a new report from the National Audit Office (NAO). The findings come amidst a dramatic 75% drop in penalties issued to the super-rich in the financial year ending March 2024. This revelation has led to calls for increased government action to ensure the richest in society contribute their fair share.

The NAO report highlights that the annual compliance yield—the additional revenue collected after chasing unpaid taxes—more than doubled from £2.2 billion in 2019-20 to £5.2 billion in 2023-24. However, this increase exceeds HMRC’s own estimate of the “wealthy tax gap” by more than £1 billion. The discrepancy suggests levels of non-compliance among high earners could be far greater than official calculations.

The wealthy tax gap, estimated at £1.9 billion for 2022-23, underlines the ongoing challenge of ensuring tax compliance among affluent individuals. This group, classified as those earning over £200,000 annually or owning assets exceeding £2 million, contributed £119 billion in personal taxes in the last tax year—making up 25% of total personal tax receipts.

The report also sheds light on a concerning drop in enforcement. Penalties issued to wealthy taxpayers fell from 2,153 in 2018-19, worth £16.2 million, to just 456 penalties in the financial year ending March 2024, valued at £5.8 million. This significant reduction raises concerns about the government’s ability to deter non-compliance effectively.

While the population of taxpayers in this category has grown from 700,000 in 2019-20 to 850,000 in 2023-24, the HMRC team addressing wealthy compliance now consists of 910 staff. Notably, a specialised unit targeting those with assets over £10 million was disbanded in 2017. Last Autumn’s budget did allocate additional funding for tackling offshore non-compliance and fraud, but critics argue more aggressive measures are needed.

Gareth Davies, head of the NAO, commended HMRC’s efforts in boosting compliance revenue from wealthy taxpayers. However, he urged for greater transparency in ensuring public confidence that tax obligations are being distributed fairly. With calls for higher taxes on wealthier individuals by left-wing MPs and trade unions, the report places further pressure on ministers to close the wealthy tax gap.

As demands for increased public spending on services and defence grow, the chancellor may need to reassess fiscal plans. Economists have suggested that raising taxes could be inevitable, further spotlighting the role of wealthy individuals in funding public finances amidst Britain’s economic challenges.