Wealthy Britons evade more tax than estimated, spending watchdog warns

Wealthy individuals in Britain may be avoiding more tax than previously estimated, the government’s spending watchdog said Thursday, following a sharp decline in penalties issued to the super-rich.

In a report urging ministers to intensify efforts to recover money owed by wealthy taxpayers, the National Audit Office (NAO) said billions of pounds go unpaid each year.

The NAO said HM Revenue & Customs had significantly increased additional tax revenue collected from wealthy individuals through compliance efforts, but further steps are needed to ensure rich people pay their fair share.

The findings come as Chancellor Rachel Reeves faces mounting pressure to find extra funds for public services and defense, with warnings she may be forced to raise taxes in the autumn budget.

Nick Williams, a former senior economic adviser at No 10 who left his post last month, said Thursday that Reeves’ spending plans were “not credible” and needed reassessment. He wrote in the Times: “The bottom line is that taxes will have to go up.”

Labour has faced calls from trade unions and left-wing MPs to target wealthy individuals with higher taxes amid tight constraints on public finances, as the chancellor prepares to deliver next month’s spending review.

According to the NAO report, billions of pounds in additional revenue could be collected from wealthy individuals. The annual “compliance yield” from well-off taxpayers—revenue HMRC collects after chasing non-payment—more than doubled from £2.2 billion in 2019-20 to £5.2 billion in 2023-24.

However, the NAO said this increase was more than £1 billion greater than the “wealthy tax gap” estimated by HMRC, which “raises the possibility that underlying levels of non-compliance among the wealthy population could be greater than previously thought.”

HMRC calculated the tax gap for wealthy individuals—the difference between the amount it estimates it is owed and what is collected—at £1.9 billion for the financial year ending March 2023.

Highlighting the scope for further crackdown, the NAO said the super-rich faced far fewer penalties for non-compliance in recent years.

HMRC issued 456 penalties worth £5.8 million to wealthy taxpayers in the year ending March 2024, a decline of more than 75% from 2,153 penalties in 2018-19 totaling £16.2 million.

Labour announced several tax increases targeting wealthier individuals in the autumn budget, including replacing the non-dom tax regime, increasing capital gains tax, and charging VAT on private school fees.

Critics on the free-market right argue the changes triggered an exodus of millionaires from Britain, but those on Labour’s left say the government could go further instead of targeting welfare cuts at the poorest.

According to the NAO report, the population of wealthy individuals that HMRC oversees grew from 700,000 in 2019-20 to 850,000 in 2023-24.

Defined as those earning more than £200,000 a year or with assets above £2 million, wealthy individuals paid £119 billion in personal taxes in 2023-24, contributing 25% of total personal tax receipts.

HMRC has a team of 910 staff focused on compliance by wealthy people, although it disbanded a dedicated unit targeting those with assets above £10 million in 2017. However, ministers provided additional funding for the tax office in the autumn budget, including provision to tackle wealthy offshore non-compliance and fraud.

Gareth Davies, head of the NAO, said: “HMRC deserves credit for greatly increasing the additional tax revenue its compliance work has brought in from wealthy taxpayers, however this may indicate that levels of non-compliance are higher than previously estimated.”

“HMRC should also seek to provide greater transparency to give greater confidence to the public that all taxpayers contribute their fair share,” he added.

A spokesperson for HMRC said: “It’s our duty to ensure everyone pays the right tax under the law, regardless of wealth or status. The government is delivering the most ambitious ever package to close the tax gap and bring in an extra £7.5bn for public services per year by 2029-30.”