Collecting tax from high net worth individuals Contents

1HMRC’s approach to high net worth individuals

1.On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Revenue & Customs (HMRC) on its approach to collecting tax from high net worth individuals.1 HMRC focuses on the people and businesses it considers pose the greatest risk of not paying the correct amount of tax. High net worth individuals are one such group. These are the very wealthiest people in the UK, who have a net worth of more than £20 million. Net worth refers to the assets owned by the taxpayer less any debts. HMRC considered there to be around 6,500 such individuals in 2015–16, about one in every 5,000 taxpayers.2

2.In 2009, HMRC set up a specialist unit dedicated to collecting tax from high net worth taxpayers. Each high net worth individual has a named contact within the unit, known as a ‘customer relationship manager’, who deals with their tax affairs. There are good reasons a tax authority would focus attention on these taxpayers. As a group, they pay a large amount of tax: in 2014–15, the latest tax year for which data is available, they paid around £4.3 billion in tax. Other reasons are: the complexity of their tax affairs; the opportunities they have to avoid tax; and to demonstrate that the tax system is fair and that compliance activity applies equally to the very wealthy as it does to other taxpayers.3

3.Since HMRC created the unit, the amount of additional tax collected as a result of checking high net worth individuals’ tax affairs has increased every year. HMRC estimates that, in 2015–16, its specialist unit raised £416 million, compared with £200 million in 2011–12. This is on top of the amounts declared voluntarily by these taxpayers.4

Transparency

4.There was relatively little published information on HMRC’s approach to high net worth individuals before the Committee began its examination of this topic. We asked if HMRC felt that its work has been a success. HMRC pointed to the £2 billion of compliance yield collected since 2009, and the contribution its specialist unit has made to combatting marketed tax avoidance.5 HMRC explained that it assesses the relative risks of each high net worth individual and that 280 taxpayers have moved from a ‘red’ rating (high risk) to ‘amber’ (medium risk) in the last two years. At the time we took evidence HMRC had classified 32% of high net worth individuals as ‘red’, compared to 37% as ‘amber’ and 31% as green.6 The Accounting Officer suggested it might improve transparency if HMRC published these data so that people outside of HMRC could track how its assessment changes over time.7

5.HMRC has changed its approach to high net worth individuals since it set up the unit in 2009. HMRC has developed a more risk-based approach to its work with high net worth individuals, focusing on those with the riskiest tax affairs.8 HMRC also appears to be taking a tougher line with those involved in tax evasion and avoidance. HMRC told us it has put ten high net worth individuals under criminal investigation since 1 April 2016.9 Before then HMRC had criminally investigated only two people since 2009.10 HMRC told us that in the six months since a taskforce was set up to examine the Panama papers it has started several criminal investigations related to that data and made two arrests.11 It also told us that it can now apply bigger penalties to those who consistently use marketed avoidance schemes, and has more powers to name them in public.12 HMRC has recently consulted on new measures to force businesses, who design and promote complex ways to invest money offshore, to disclose the nature and owner of the investments to HMRC.13

6.HMRC accepted that it is not clear enough about its overall compliance strategy, or how prosecutions fit into it.14 We have previously recommended that HMRC should assess what is the optimum level of prosecutions, and should evaluate and quantify the impact of prosecutions and other measures in deterring evasion. It should work with others to model the impact of different approaches, and then review its prosecutions strategy.15 HMRC agreed that it needs to be clearer about its strategic thinking and the reporting of its performance.16 This includes providing greater clarity on HMRC’s compliance strategy and its prosecutions policy. HMRC told us that it would address this in its public reporting in 2017.17

Customer relationship managers

7.Customer relationship managers aim to work with taxpayers to resolve issues before they submit their tax return. The relationships they develop allow more opportunities to influence taxpayers and encourage them to comply with the tax rules. The National Audit Office has observed that high net worth individuals are subject to a high level of scrutiny from HMRC, but in return receive an increased level of customer service.18 We asked HMRC whether it recognised the risk that by having staff called customer relationship managers it gave the impression that high net worth individuals are treated better than other taxpayers.19 HMRC acknowledged that the term customer relationship manager sounded much friendlier than the role was in practice. It added that, while it could call them something else, it was not sure all taxpayers would wish for the level of compliance attention received by high net worth individuals. Its arrangements for collecting tax from high net worth individuals mean they get much closer scrutiny than most other groups, except for organised crime and large businesses.20

8.HMRC told us that customer relationship managers do not give advice to taxpayers.21 They can discuss HMRC’s likely position on a specific issue or approach before a taxpayer enters into a particular activity, in order to avoid the cost of a potential future enquiry once a tax return is submitted. They are not however allowed to propose the treatment that a taxpayer should adopt.22 We asked HMRC about this grey area between not giving advice and at the same time discussing specific issues and working cooperatively in real time. HMRC told us that giving its view on how it would treat a proposed transaction is not the same as giving advice, but it understood that “you might think that the line is fairly close, but it is not advice”. HMRC also stressed the level of checking that took place over the work of customer relationship managers, and their teams.23

9.HMRC told us that meetings between customer relationship managers and high net worth individuals or their agents are not routinely recorded. In some instances, for example when there is a criminal investigation or where there is agreement to do so, meetings will be recorded, but this is not usual practice.24 Phone calls to or from customer relationship managers are also not recorded. HMRC does record calls to its main customer services lines, for training purposes. HMRC explained that the difference is because calls with customer relationship managers often only involve routine discussions about case management, for example arranging meetings or chasing paperwork. It also told us that it does not have the relevant facilities to record calls on its telephones outside of its call centres.25

1 C&AG’s Report, HMRC’s approach to collecting tax from high net worth individuals, Session 2016–17, HC 790, 1 November 2016

2 C&AG’s Report, summary paras 2–3

3 C&AG’s Report, paras 1.5, 1.7, 2.4, Figure 6

4 C&AG’s Report, para 4.3, Figure 15

5 Q 110

6 Q 72

7 Q 80

8 C&AG’s Report, paras 2.12–2.13, Q 139

9 Q 102

10 C&AG’s Report, para 3.11

11 Q 12

12 Q 106