UK admissions of overseas tax evasion increase by 22%
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The number of people in the UK who admitted not paying tax on their overseas assets rose by almost a quarter in 2023-24, according to government data.
A total of 5,643 people admitted to not paying enough tax on their overseas assets to HM Revenue & Customs, up from 4,630 in 2022-23 – a 22% increase – data obtained under a Freedom of Information request showed. news shows.
The government has promised to raise billions of pounds by curbing tax evasion and avoidance, with HMRC Funding for 5,000 additional compliance officers in the Budget.
Tax experts say the increase in tax evasion disclosures is due to several factors. These include HMRC sending more warning letters, receiving data from more countries about people’s overseas affairs and raising public awareness about sharing its data.
Graham Caddock, director of tax investigations at Lubbock Fine, the consultancy that made the FOI request, said: “HMRC’s relentless pursuit of tax evaders now leaves very few places to hide.”
He added that tax authorities are “making good use of information received from overseas jurisdictions, checking tax declaration entries and . . . its database to find people who are staying away from HMRC.”
Since 2018, international regulations have led to the automatic exchange of financial information between tax authorities. These agreements, developed by the OECD and known as the Common Reporting Standards (CRS), have been signed by 120 countries.
Participating countries include famous tax havens such as Switzerland, Bermuda, the British Virgin Islands and the Cayman Islands. Meanwhile, from 2027, the information sharing program will be expanded to include the exchange of crypto assets.
HMRC uses algorithms to identify anomalies between overseas data records and its data on UK residents. The system then generates “nudge letters” that are sent to individuals when discrepancies are detected.
Dawn Register, tax dispute resolution partner at BDO, an accountancy firm, said she suspects the information HMRC is currently receiving is “more accurate and needs to be analyzed more closely. . . using sophisticated AI technology.”
This greater analytical capability may be one of the factors driving the increase in tax disclosure.
“Awareness and education about CRS and tax reporting has encouraged more people to speak up and keep up to date with their UK tax issues,” she added.
Individuals can disclose unpaid tax on foreign assets using HMRC’s worldwide online disclosure facility.
The maximum penalty for failing to disclose overseas income can be up to 200% of the tax owed and in the most serious cases can result in a prison sentence.
Caddock said continuing to disclose after receiving an urging letter “significantly reduced” the risk of being fined.
HMRC estimates that the tax gap – the difference between the amount of tax expected to be collected and the amount paid – is £39.8 billion in 2022-23, with around £5.5 billion may have been specifically lost due to tax evasion.
HMRC estimated, in data published earlier this year, that the undeclared tax liability of UK resident individuals with overseas income was around £300 million in 2018-19. Analysis shows that around 4% of this group have underdeclared their tax liabilities to HMRC.
