UK acceptance of overseas tax avoidance jumps 22%

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The number of UK people who admitted not paying tax on their overseas assets rose by almost a quarter in 2023-2024, according to government data.

A total of 5,643 people admitted not paying enough tax on their foreign goods to HM Revenue & Customs, up from 4,630 in 2022-2023 – an increase of 22% – data obtained under a freedom of information request shown.

The government has promised to raise billions of pounds by cracking down on tax avoidance and evasion, by HMRC Funded for 5,000 more Budget compliance officers.

Tax experts said the increase in bankruptcy filings was driven by several factors. These included HMRC sending out a greater number of warning letters, receiving data from more countries on expatriate issues and an increase in public awareness of data sharing.

“HMRC’s pursuit of tax evaders now leaves very few places to hide,” said Graham Caddock, director of tax research at Lubbock Fine, the consultancy firm that submitted the FOI request.

He added that the tax authorities “make good use of the information they get from overseas, they check tax documents and . . . its database to look for those who avoid HMRC altogether”.

Since 2018, international laws have led to the exchange of independent information on financial statements between tax authorities. These agreements, developed by the OECD and known as the Common Reporting Standard (CRS), have been signed by 120 countries.

Participating countries include well-known 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 differences between foreign data records and its own data on UK residents. The system then generates “nudge letters” that are sent to individuals when discrepancies are found.

Dawn Register, a tax dispute resolution partner at BDO, the accountancy firm, said she suspected that the information HMRC was receiving now was “more accurate and more auditable . . . using advanced AI technology.” .

This greater audit power could be one of the factors driving the increase in tax disclosures.

“Awareness and education about CRS and tax reporting has encouraged more people to come forward and improve their UK tax information,” he added.

Individuals can report unpaid import tax using HMRC’s global declaration website.

The maximum penalty for failing to report foreign income can be up to 200 percent of the tax owed, and in the most severe cases a prison sentence.

Coming forward to make a disclosure after receiving a nudge letter “significantly reduced” the risk of fines, Caddock said.

HMRC estimates that the tax gap – the difference between what it expected to collect in tax and what it paid – was £39.8bn in 2022-23, and around £5.5bn could be lose specifically because of avoidance.

HMRC estimated, in data published earlier this year, that the undeclared tax liability of UK residents with overseas income was around £300mn in 2018-19. The survey found that around 4 per cent of this group had fully disclosed their tax liability to HMRC.