According to the government’s spending watchdog, Britain’s wealthy individuals are managing to evade paying more taxes, which has been highlighted by a notable drop in penalties issued to them. The National Audit Office (NAO) released a report urging ministers to intensify their efforts in collecting taxes owed, noting that billions remain unpaid each year.
The HMRC, or Her Majesty’s Revenue and Customs, claims to have made progress in generating additional tax revenue from wealthy taxpayers by addressing non-compliance issues. However, they acknowledged that further actions are necessary to ensure the rich contribute their fair share.
Prime Minister Rachel Reeves is feeling the heat to discover more funding for public services and defense, especially with indications that tax increases may be necessary in the upcoming budget this fall.
Nick Williams, a former senior economic advisor, expressed concerns about Reeves’ spending proposals, labeling them as “unreliable” and suggesting a reassessment is needed. He stated in The Times that it’s clear taxes must go up.
The Labour Party is advocating for trade unions and left-leaning Members of Parliament to push for higher taxes on wealthy individuals, particularly as the prime minister prepares for a spending review next month under tight financial constraints.
The NAO report estimates that billions could be collected from wealthy individuals. It pointed out that the annual “compliance yield” from these taxpayers has more than doubled, increasing from £2.2 billion in 2019-20 to £5.2 billion in 2023-24.
Yet, this increase surpasses the £1 billion discrepancy identified by the HMRC in its estimates of the “wealthy tax gap.”
As of March 2023, HMRC estimated the tax gap for wealthy individuals at £1.9 billion for the prior fiscal year.
The NAO emphasized that the number of penalties for non-compliance among the ultra-rich has significantly decreased in recent years.
For the fiscal year ending March 2024, HMRC issued only 456 penalties totaling £5.8 million, which is down over 75% from the 2,153 penalties they issued in 2018-19, amounting to £162 million.
Labour has proposed multiple tax hikes for wealthy individuals in the upcoming fall budget, including modifications to the non-DOM tax system, increased capital gains tax, and a VAT on private school fees.
Critics from the free-market side argue that these changes could drive billionaires out of the UK, while leftist advocates insist the government should take more action instead of targeting welfare cuts that impact the poorest members of society.
The NAO’s report found that the number of wealthy individuals overseen by the HMRC rose from 700,000 in 2019-20 to 850,000 in 2023-24.
An individual is considered wealthy if they earn over £200,000 or possess assets exceeding that amount, having paid £119 billion in personal taxes in 2023-24 while contributing 25% of personal tax receipts.
Although HMRC disbanded its specialized unit focused on assets over £10 million back in 2017, there remains a team of 910 staff members dedicated to ensuring compliance among wealthy individuals. The minister has allocated additional funding to the tax office in the fall budget to combat offshore non-compliance and fraud.
Gareth Davies, head of NAO, stated, “HMRC should be commended for raising additional tax revenues from wealthy taxpayers, which suggests there might be a higher level of noncompliance than initially thought.”
He also noted that the HMRC should work towards increased transparency to foster greater trust among all taxpayers regarding fair contributions.
A spokesperson for HMRC asserted, “It is our responsibility to guarantee that everyone, irrespective of their wealth or status, pays the appropriate taxes as mandated by law. The government is committed to delivering an ambitious plan to contribute an extra £7.5 billion to public services annually by 2029-30.”
