As UK chancellor of the exchequer Jeremy Hunt prepares the Spring budget on 6 March, and as HMRC income from investigations reaches a record high, national accountancy group UHY Hacker Young looks at what can be done to mitigate the impact.
New data from the UK government’s tax authority HMRC shows that income from tax investigations reached over £39 billion ($49 billion) at the end of December 2023, up 22 per cent from £32 billion in 2022, according to UHY Hacker Young.
“HMRC has stepped up its investigations into areas where it believes it is missing out on large amounts of unpaid tax,” Nikhil Oza, corporate tax partner at UHY Hacker Young, said.
This includes ultra-high net worth individuals suspected of underpaying tax, such as the Bernie Ecclestone investigation, that brought in £653 million in tax and penalties. It also includes cryptocurrency traders not properly declaring their gains for tax purposes, where HMRC has started a new campaign of enquiries.
The data comes at a time when the ruling Conservative Party, lagging behind the opposition Labour Party in the opinion polls, may try to make a point about tax cuts in the 6 March budget package due to be unveiled by Chancellor of the Exchequer Jeremy Hunt. His statement is likely to be the last major opportunity for the government to set out its fiscal policy stance before a general election has to be held by the end of this year. The overall tax burden is at the highest level since the early 1950s - not a comfortable position for a centre-right government to be in.
Another area being investigated is residential landlords who do not declare income properly; the Let Property Campaign pushes landlords to confess tax evasion, UHY Hacker Young said.
Large multinational businesses being too aggressive with ‘transfer pricing’ – cross-border payments between companies in a group than can be used to reduce corporation tax bills in the UK – is also subject to investigations, UHY Hacker Young said.
Businesses claiming research and development tax relief to which they are not entitled are also being investigated. “HMRC is getting tougher and cracking down on unpaid tax across the board – and these figures show it’s working,” Oza said.
“Any business or individual with unpaid tax needs to be aware that their chances of getting away with it are lower than they’ve ever been. HMRC is deploying more technology, including artificial intelligence (AI) to catch them and the government is happy to fund more investigations,” he continued.
“Taking professional advice and then coming clean to HMRC will virtually always result in a better outcome than hoping HMRC doesn’t spot your non-compliance, especially as voluntary disclosures yield lower penalties,” Oza added.
HMRC inheritance tax receipts for the period April to December 2023 have also reached record levels. The tax is typically paid at a rate of 40 per cent over certain thresholds; money can be passed on IHT-free to a spouse or civil partner, who will then also inherit the allowance when they die.
Despite pressure to cut or even remove the controversial inheritance tax in last year’s Autumn Statement, it was not included, raising speculation on whether it will be included in the Spring budget. Laura Hayward, tax partner at professional services and wealth management firm Evelyn Partners believes that a pledge on inheritance tax could feature in the Conservative manifesto rather than in the budget.
Wealth managers have also outlined what can be done to mitigate the impact of inheritance tax, including making a will, gifting, setting up a trust fund or investing in companies that qualify for business relief. See more commentary here.
UHY Hacker Young, which is a large UK accountancy network with 96 partners, working from 24 locations around the country, provides a range of accounting, tax and business advisory services.