Taxman Keeps Eye On The Wealthy

26.02.13

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

As European countries struggle to rebuild their economies and reduce their deficits, many are relying on their wealthier residents to provide more tax revenue. Higher earners are bei

As European countries struggle to rebuild their economies and reduce their deficits, many are relying on their wealthier residents to provide more tax revenue. Higher earners are being hit with higher taxes, and governments are also looking for other ways to tax the rich.

Besides raising tax rates, governments are taking a closer look at the tax affairs and lifestyles of the wealthy to find those who hide income and wealth from the tax authorities. While this article mainly reviews what the UK?s HM Revenue & Customs (HMRC) is doing, other countries are now taking a much stronger stance against tax evaders.

HMRC has a specific unit to target wealthier taxpayers. The Affluent Compliance Team was set up in October 2011 with a mandate to collect an extra ?586 million by the end of 2015. It brought in ?75 million in additional tax by the end of 2012, well ahead of expectations.

In January HMRC confirmed that it will recruit another 100 tax inspectors for the Team, taking the total to 300.

The remit is also being extended. The Affluent Compliance Team currently looks at taxpayers with an annual income above ?150,000 and wealth between ?2.5 million and ?20 million. It will now include those with wealth above ?1 million. HMRC estimates this will increase the number of individuals under scrutiny to 500,000.

Exchequer secretary, David Gauke, warned: ?Dodging tax is immoral, illegal and unaffordable and the minority who cheat are increasingly finding that, thanks to the work of the Affluent Team, they have made a big mistake.?

The UK is not alone in understanding the benefit of hiring more tax inspectors. The Portuguese government plans to employ 1,000 highly qualified inspectors this year. One of their key jobs will be to assess bank accounts.

Back in the UK, the Crown Prosecution Service has joined with HMRC in taking a tougher stance on tax evasion. In January it announced that it will increase the number of tax files it handles fivefold, with a view to prosecution.

In 2010/11 it secured 200 successful convictions against tax cheats. This Increased to 550 the following year, with the conviction rate remaining high at 86%.

HMRC will now refer sufficient cases to the Crown Prosecution Service to enable prosecutions to rise from 165 individuals in 2010/11, to 565 this year and then 1165 in 2014/15.

HMRC has various ways of collecting data.

There is a large flow of information these days, both internally between different government agencies and globally from exchange of information treaties. It has also received information from stolen bank data.

It uses sophisticated data mining techniques to look for anomalies between the income individuals declare and their lifestyle indicators. For example, it can identify people who own overseas property, and then apply risk assessment tools to highlight those who do not appear to be able to afford it.

Internet research is proving increasingly useful. HMRC can look for holiday rentals advertised online and people talking about their luxury homes and lifestyles on Twitter.

The Regulation of Investigatory Powers Act 2000 allows HMRC to authorise its own surveillance requests. It is increasingly examining records of taxpayers? emails, text messages, phone calls and websites visited, as part of their investigations into suspected tax evasion.

Last year the tax authority piloted a scheme that used credit reference agencies to cross check people?s declared income against their spending patterns. This identifies individuals whose income and wealth do no match what they have declared. This will now be introduced nationally, and around 2 million people could be scrutinised under the programme.

This is likely to target self-employed individuals who under declare their income, but could also target those with hidden offshore accounts or who receive inheritances or bonuses.

The UK is not the only country to look at spending habits. It was reported last year that the Spanish tax office had won the right to make El Corte Ingl?, which is Spain?s largest department store and popular with wealthy expatriates, provide account details on their customers who had spent ?30,000 or more on their store credit cards over 2006 and 2007.

In December HMRC published a document called ?Closing in on tax evasion?, outlining its approach to fighting tax evasion and future plans. The plans include:

  • Send hundreds of letters challenging people with secret overseas bank accounts to explain their position.
  • Establish a new centre of excellence on offshore tax evasion and develop a more proactive approach to international engagement to tackle it.
  • Introduce new data driven tools to help identify affluent individuals who are evading tax, including data from banks on financial transactions.
  • Seek new data sources to improve ability to spot wealthy tax evaders, including information from overseas and data openly accessible on the internet.

No-one wants to pay more tax than necessary, but you should only ever use tax planning arrangements that are legitimate and approved in your country of residence. For advice on effective tax mitigation solutions in the UK, Spain, France, Portugal, Cyprus and Malta speak to Blevins Franks.

7 February 2013

The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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