Are the wealthy taxed enough?

I was surprised to read in today’s paper that one third of the UK’s most wealthy people are under tax investigation at the present time!  A specialist unit of HMRC looks after 6,500 of these people (who have assets in excess of £20m each) and most inquiries concern the complexity of legislation, as opposed to the subject of tax evasion.

The extra tax collected was £416m in 2015-16.  This equates to about £200,000 per enquiry.  However, this group of people already paid £3.5bn before this additional tax (based on income tax and national insurance), plus £880m of capital gains tax.   These people, despite only accounting for 0.02% of all taxpayers, pay 1.3% of all income tax and national insurance, plus 15% of the total capital gains tax.  This is about 9.5% additional tax on this group of people, compared to 5% across the HMRC enquiries as a whole.  Several criminal cases are also under way, although these do take years.

So to those who say the rich get away with tax avoidance then they should think again.  HMRC do have the powers they need to make good use of their resources to collect extra tax.

However, we do know that HMRC expand considerably energy on non-productive enquiries.  I recently handled an enquiry into a £10m turnover, profitable well established and well run trading company.  The enquiry was badly run by HMRC, naïve in its approach (they wanted all the books and records delivered to their office, we declined on the basis that they wouldn’t have a large enough office!), handled by a team of junior staff and dragged out with meaningless questions.  And the additional tax assessed?  £500.  Yes… £500.  A simple risk assessment approach might have severely reduced the time and cost to both parties.  They could have identified that tax was due from a review of papers already in their possession at their desk, without visiting the client and taking up considerable time in asking daft questions.

Okay, so £500 is still more than nothing, but I doubt it was a good target to look at or approached in the right way.

Forgive me if I don’t expand on where I think the soft targets for HMRC are, but there are quite a few rocks I would turn over first to maximise uncollected tax.  However, that’s their job to find that out, not mine to tell them.

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