Individuals and the wealthy’s tax affairs most scrutinised by HMRC despite small tax gap

Despite HMRC’s report showing a small proportion of the tax gap is attributable to individuals and High Net Worth’s (HNWs), HMRC is increasingly focused on scrutinising their affairs, says leading tax and advisory firm Blick Rothenberg.

Fiona Fernie, partner and tax dispute specialist for Blick Rothenberg said: “It is surprising that HMRC still seems to be focusing significant attention on enquiring into the tax affairs of individuals and HNWs when the proportion of the tax gap attributable to them is very small (6% and 5% respectively) – numbers which have remained relatively steady for some years – whereas the proportion attributable to small businesses now stands at 56% (up from 40% in 2017/18).”

Fiona said: “The number of domicile enquiries, enquiries relating to let property and enquiries relating to offshore income are, in our experience, ever-increasing. However, despite HMRC’s suggestion in the report that they are undertaking more enquiries into small businesses, we are not seeing an equivalent level of activity in that regard. Surely the focus should be on the areas where the largest tax gap has been identified?”

She added: “This makes it appear that, partly as a result of the drop in staff numbers and staff training, one could legitimately argue that HMRC is increasingly focused on getting ‘extra’ income from the legitimate, non-tax evading element of the UK population rather than tracking down fraud/evasion.”

Fiona said: “Other examples include the fact that the HMRC tool for assessing employment vs self-employment (CEST) – in broad terms – ‘ignores’ many factors (which are backed up by case law) which would support the idea that a worker is self-employed, despite the fact that the profession has consistently highlighted such flaws/issues to the Revenue. At the same time, HMRC has now ‘closed down’ the teams which were specifically focused on tracking down Covid fraud cases, despite the estimated cost of these fraudulent claims to the UK Govt.”

She added: “Clearly HMRC is in a difficult position – under political pressure and under-funded – in some ways it is in a ‘no-win’ situation. However, anyone who wants a functioning, fair and effective tax system should highlight the difficulties and problems HMRC faces and also support the idea of fair/reasonable funding for the service!”