Tax officials are under pressure this weekend to publish estimated figures on offshore tax avoidance by some of the country’s wealthiest individuals after withholding the information in a report published during the election campaign.
In June 2022, Lucy Frazer, then financial secretary to the Treasury, pledged that HM Revenue and Customs (HMRC) would publish figures on the offshore tax gap, but the release of the figures has been repeatedly delayed. An HMRC report published on 20 June this year – four weeks after the election was called – estimated the tax gap to be £39.8bn for the 2022-23 tax year. The tax gap is the difference between the amount of tax that should be collected and what has actually been paid.
A breakdown of the figures of “non-compliance by UK residents failing to declare their offshore income” was withheld by HMRC. Officials concluded that this “additional breakdown of the tax gap should not be released within the election period” in line with guidance for civil servants.
Election guidance for civil servants says that statistical activities should “avoid competition with parliamentary candidates for the attention of the public”.
The decision to withhold the estimated figures has been challenged by the investigative thinktank TaxWatch. It says that if HMRC concluded it was too controversial to publish the offshore tax gap figures, the publication of the other tax gap figures should also have been delayed.
Claire Aston, director of TaxWatch, said: “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.”
HMRC has been under pressure to estimate the size of the tax gap after figures disclosed to the independent thinktank Tax Policy Associates by HMRC in September 2021 revealed that UK taxpayers held nearly £570bn in tax havens. Officials said at the time that they hadn’t produced any estimates of the amount of foreign financial accounts that hadn’t been properly disclosed.
A common reporting standard approved by the OECD in 2014 now enables the automatic exchange of financial information between partner countries to combat tax evasion. The standard under which nearly all UK residents with overseas bank accounts have the balance and interest reported annually to HMRC has provided an invaluable resource of new information to officials.
Steven Porter, head of tax disputes and investigations at the law firm Pinsent Masons, said he was doubtful that there would be a “pot of gold” from offshore tax avoidance after the introduction of tougher penalties and the publicising of voluntary disclosure facilities. Porter said: “They may be some individuals who have stubbornly got their head in the sand, but I think they are a dying breed.”
He said there may be some “legacy” offshore tax avoidance schemes, but he expected most of those to have been identified by HMRC. The total estimated gross tax gap for individuals who completed self-assessment tax returns was about £2bn, he said, and the offshore tax gap was likely to be a proportion of that and relatively low.
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Labour said that it intended to raise more than £5.2bn by 2028-29 by reducing tax avoidance and closing loopholes that allowed some people with non-domicile tax status to avoid paying tax in the UK.
The Chartered Institute of Taxation has said that the tax gap – which was 4.8% of theoretical UK tax liabilities in 2022-23 – can probably be reduced, but further marginal gains will be hard to achieve. It points out that the revenue lost due to tax avoidance in 2022-23 was £1.8bn, or 0.2% of total theoretical liability. It said in a briefing last month: “Ambitious targets are to be applauded but our advice to politicians of all parties is not to spend the money before it’s been collected.”
An HMRC spokesperson said: “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.”