The UK’s National Audit Office has noted that the tax authority HMRC is currently pursuing around a third of the UK’s wealthiest people for a total of around GBP 1.9 billion in underpaid tax. The National Audit Office (NAO) is a watchdog that reviews government spending. Their report notes that most of the HMRC enquiries are related to the legal interpretation of complex tax issues rather than to tax evasion.

HMRC has a specialist unit the looks at the tax affairs of high net worth individuals. The unit scrutinizes the tax position of around 6,500 of the wealthiest individuals in the UK, defined as those with assets totaling more than GBP 20 million.

The NAO report notes that HMRC assigns a customer relationship manager (CRM) to each high net worth individual. In practice this means working with the tax agent of the individual. Each of the forty CRMs has a team of staff and each team is responsible for around 160 of the wealthy taxpayers. The report notes that the use of CRMs for high net worth individuals is not common in other countries.

HMRC considers that high net worth individuals frequently have complex tax affairs and this gives them more opportunity to carry out tax planning than is the case for the average taxpayer in the UK. In 2015/16 the specialist unit managed to collect an extra GBP 416 million in tax from this group of people, in addition to the amount the individuals had originally paid in income tax, national insurance and capital gains tax on their income and gains for the year.

HMRC sees a need to demonstrate that the tax system is fair and that the widespread impression that wealthy people pay very little tax is incorrect. The NAO is in agreement that HMRC should have a specialist unit dedicated to scrutinizing the tax affairs of these wealthy people. The report called on HMRC to identify the most effective ways to collect the tax due from this group of individuals.

The report estimated that one in three of the wealthiest individuals were currently the subject of a formal enquiry and an average of four issues was being examined for each taxpayer. The enquiries often require a long period of time to complete and the estimated GBP 1.9 billion in tax that could be collected therefore relates to more than one tax year. The report notes that of the issues subject to enquiry six thousand have been open for more than eighteen months and of these four thousand have been open for more than three years. Of the total tax in dispute around GBP 1.1 billion or more than half the total relates to tax avoidance schemes.

The report by the NAO notes that HMRC gives priority to recovering tax where it identifies fraud and uses civil investigations to recover the tax in the majority of cases. Issues of tax evasion are unusual but where such a case arises there is normally a significant amount of tax involved. In the past five years 72 cases involving tax fraud by high net worth individuals have been investigated and completed and these have resulted in the collection of GBP 80 million in additional tax and penalties. Of these cases involving tax fraud two were subject to criminal investigation and there was one criminal conviction. Another ten high net worth individuals are currently subject to a criminal investigation.

HMRC has taken note of the leaked documents known as the Panama Papers containing information on the use of shell companies. Around forty potential cases involving high net worth individuals have been identified by HMRC from those documents and those cases are currently under investigation by the fraud investigation service and by staff in the high net worth unit.

The NAO report notes that the approach used by HMRC in the case of high net worth individuals has developed over time. The tax authority initially focused on building up a better understanding of the tax situation of high net worth individuals but it has now refined its approach and has focused increasingly on the highest risk taxpayers. The report suggests that HMRC should evaluate its approach and use the resulting analysis to increase the effectiveness of its work.