HMRC withheld offshore tax avoidance figures for UK’s wealthy during election

HM Revenue and Customs (HMRC) is under increasing pressure to release estimates on offshore tax avoidance by some of the wealthiest individuals in the UK. This comes after the figures were withheld in a report published during the election campaign.

In June 2022, Lucy Frazer, then the financial secretary to the Treasury, committed to publishing figures on the offshore tax gap. However, the release has been repeatedly delayed. A report released by HMRC on 20 June this year, four weeks after the election was called, estimated the total tax gap for the 2022-23 tax year to be £39.8bn. This tax gap represents the difference between the amount of tax owed and the amount actually paid.

HMRC withheld a breakdown of the figures specifically related to “non-compliance by UK residents failing to declare their offshore income,” citing election period guidelines for civil servants which advise against statistical activities that could compete with parliamentary candidates for public attention.

The investigative thinktank TaxWatch has challenged this decision, arguing that if HMRC deemed the offshore tax gap figures too controversial to release, then the publication of other tax gap figures should have also been delayed. Claire Aston, director of TaxWatch, stated, “The main political parties pledged in their election manifestos to raise more revenue by closing the tax gap, and given that, these figures should not have been held back.”

Pressure on HMRC to estimate the offshore tax gap has been mounting since September 2021, when HMRC disclosed to Tax Policy Associates that UK taxpayers held nearly £570bn in tax havens. Despite this disclosure, HMRC had not produced estimates on the amount of foreign financial accounts that were not properly disclosed.

The implementation of the OECD’s common reporting standard in 2014 has facilitated the automatic exchange of financial information between partner countries, aiding in the fight against tax evasion. This standard requires UK residents with overseas bank accounts to report balances and interest annually to HMRC, providing valuable new data for tax officials.

Steven Porter, head of tax disputes and investigations at law firm Pinsent Masons, expressed skepticism about finding significant new revenue from offshore tax avoidance due to stricter penalties and increased public awareness. He noted that while some individuals may persist in evasion, they are becoming increasingly rare. He estimated the total gross tax gap for individuals who complete self-assessment tax returns to be around £2bn, with the offshore tax gap likely being a smaller fraction of that amount.

Labour has pledged to raise over £5.2bn by 2028-29 by curbing tax avoidance and closing loopholes, including those exploited by non-domiciled individuals to avoid UK taxes. The Chartered Institute of Taxation has acknowledged that while the tax gap, which was 4.8% of theoretical UK tax liabilities in 2022-23, can be reduced, achieving further significant gains will be challenging. They cautioned politicians against premature spending of projected revenues from these efforts.

An HMRC spokesperson defended the agency’s record, stating, “We have a strong track record in tackling offshore non-compliance. Since the launch of our No Safe Havens strategy in 2019, we have secured almost £700m from offshore initiatives.”

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