UK admits it has no idea how much tax is being evaded through offshore assets

The UK tax authority has admitted it has no idea how much tax is being evaded by UK residents holding money offshore, after new figures revealed hundreds of billions of pounds was held in tax havens.

HM Revenue & Customs disclosed in freedom of information requests that UK residents had £850bn in financial accounts overseas — of which £570bn was based in tax havens — in 2019, the latest year HMRC has released statistics for.

The figures come from financial data that has been shared with HMRC by more than 100 countries since 2017, under international rules known as the Common Reporting Standard (CRS).

But when asked if HMRC had used the CRS data to estimate what proportion of UK residents had properly reported their overseas accounts, HMRC said it had not.

“We have not produced or received any estimates, analysis or statistical information as to what proportion of the foreign financial accounts have been ‘properly disclosed’, nor can this be accurately inferred in the data we hold,” HMRC said in its replies to the FOI requests.

Some account information shared under the CRS was not taxable in the UK, the responses to the FOI requests added.

But tax experts criticised HMRC’s stance, warning it sent the wrong message to people seeking to evade tax.

Dan Neidle, founder of Tax Policy Associates, a think-tank which made the FOI requests, said it was “astonishing” HMRC had not been able to come up with an estimate of how much of the £570bn had been undeclared.

He argued that “in most cases it should be straightforward for HMRC to automatically cross-check tax returns” — which require individuals to declare their offshore accounts — with the CRS data to identify tax cheats and use the result to create an approximate estimate for offshore tax evasion.

“This is great data, but what’s the point of this information if it’s not being used?” said Arun Advani, assistant economics professor at the University of Warwick. “It highlights the resourcing constraints HMRC are under.”

Given the £850bn held offshore represented around 6 per cent of the UK’s total net household wealth of £14.6tn, HMRC should be doing more to check it, Advani said.

Alex Cobham, chief executive at the Tax Justice Network, a pressure group which campaigned for the CRS for years before its introduction, criticised HMRC for “an outright dereliction of duty”.

Senior tax lawyer Jolyon Maugham said “the disinclination of HMRC to take a proper interest in the deep pools of offshore money held by the mega-rich is, I am afraid, a longstanding problem and one that requires some explaining”.

HMRC rejected claims it was not using or checking the data, saying it used CRS data to “systematically compare” it to UK tax records and information, before deciding what compliance response to take.

Compliance ranged from sending nudge letters telling people to check their tax to criminal investigations.

“The CRS provides us with more of the critical information we need for our compliance activity and is playing a major role in helping us to tackle tax evasion and avoidance,” HMRC said.

Since 2017/18, the tax office had brought in £570mn in tax because of automatic exchange agreements, including the CRS, it added.

When asked why it had not made any estimates of people potentially evading tax by not declaring offshore accounts properly, HMRC said its data was limited.

“The CRS data contains millions of records and is just one of many data sets we have access to. Not all of the worlds’ jurisdictions are signed up to CRS and we could not say with certainty whether each account was properly disclosed. We would not publish a figure where we did not have certainty that [it] is accurate.”

HMRC added that some of the UK residents’ accounts may be owned by people who are non-domiciled in the country, and therefore not subject to UK tax. But it could not give a percentage as to how many of the 1.2mn accounts in tax havens in 2019 were owned by non-doms.

Tim Stovold, partner at accountancy firm Moore Kingston Smith, said he suspected most of the accounts in tax havens were held by non-doms, adding that the UK regime “positively encouraged people to keep money overseas”.