Faced with UK government-set targets to increase tax collection, the tax authority must view high net worth individuals as the most appropriate subjects for scrutiny.

In the following article, Niall Hearty (main picture) from law firm Rahman Ravelli assesses HM Revenue and Customs’ approach to high net worth individuals. 

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For many years, “tax the rich’’ has been a recurring phrase. To many people, it has been seen as at least part of the solution to the UK’s tax revenue problems. 

And now the figures indicate that it is becoming a reality. HM Revenue and Customs (HMRC) has recently disclosed that the amount it raised from those who could be classed as rich individuals more than doubled last year. The total haul from such people was £1.5 billion ($2.03 billion), compared with £713 million the previous year. 

To some degree, this can be put down to current Chancellor of the Exchequer Rachel Reeves’ desire to see HMRC pulling in more tax pounds. This has resulted in it being given greater resources to tackle tax evasion, tax avoidance and any other instances where it is believed that individuals may (knowingly or unknowingly) not have been paying the full amount of tax owed. 

The National Audit Office (NAO) has reported that HMRC has been set the target of increasing individual prosecutions by 20 per cent by 2030. According to the NAO, HMRC’s policy is “to focus on high-value, high-harm fraud”.

These are circumstances that may have many high net worth individuals hearing alarm bells. More specifically, that ringing sound may be heard by those who earn more than £200,000 a year or have assets of more than £2 million, as these are the people classed as wealthy by HMRC. Faced with government-set targets to increase tax collection, HMRC has to be viewing HNW individuals as the most appropriate subjects for scrutiny. The wealthy have more money that could be taxed than other people. And they may be more likely to have sought advice on ways that at least some of their cash could be kept from the prying eyes of the taxman.

HMRC has made no secret of the fact that it is letting technology do a lot of the legwork when it comes to its collections from HNW individuals. Its use of data analytics to cross reference tax returns with information relating to assets, banking and travel means that the hunt for extra tax revenue goes beyond inquiries based on tip-offs and supposition. 

This is an approach that clearly aligns with the Labour government’s emphasis on looking for more tax revenue. But, according to some figures, it could be argued that the scrutiny of the wealthy had been gathering momentum before the current administration came to power in July last year. 

HMRC’s prosecution of wealthy individuals for tax fraud rose to pre-pandemic levels in the 12 months to March 2024. Figures in the final weeks of the Conservatives’ 14 years in power showed that the number of HNW individuals HMRC suspected of serious tax evasion had almost doubled in a year, from 88 to 172. 

In that period, there had been an increase in the numbers of individuals and businesses being referred to HMRC’s Suspected Fraud Management Team by investigators in its Wealthy and Mid-sized Business Compliance Directorate; which is its department that deals with HNWIs. And being referred to the SMFT is one short step away from a full tax investigation.

There is little doubt that HMRC is now taking an increasingly long, detailed look at the wealthy, particularly their adoption of complex financial structures, and use of offshore accounts and overseas income. And it has been given greater resources to do this.

This is not a sudden about turn from the tax man. HMRC released a report in 2022 setting out how the agency is planning to ensure that wealthy individuals pay the right amount of tax. But it is an appropriate reason to emphasise that HNWIs should consult those who advise them on their tax affairs and, when necessary, proactively engage with HMRC before a tax return is filed.

In the event of an investigation being opened, HNW individuals need to consult a solicitor to advise on how best to respond to any allegations of wrongdoing. This may lead to proactive engagement with HMRC investigators, examination of previous tax returns and advice received and, in some instances, an interview under caution. But the chances of this outcome can be minimised with a little forward thinking. HMRC’s focus is increasingly on HNW individuals. Such persons need to focus on what this may mean for them.