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The number of UK people who admitted not paying tax on their overseas assets jumped by almost a quarter in 2023-24, according to government data.
5,643 people admitted not paying enough tax on their foreign goods to HM Revenue & Customs, up from 4,630 in 2022-23 – an increase of 22 per cent – data obtained under a freedom of information request showed.
The government has promised to raise billions of pounds by cracking down on tax avoidance and evasion, with HMRC provided funding for 5,000 additional compliance officers in the Budget.
Tax experts say the rise in tax evasion is driven by several factors. These include HMRC sending out a large number of warning letters, receiving data from many countries on people's foreign affairs and increasing public awareness of data sharing.
“HMRC's aggressive pursuit of tax evaders now leaves few places to hide,” said Graham Caddock, director of tax research at Lubbock Fine, the consultancy which issued the FOI request.
He added that the tax authorities “make good use of the information they get from overseas, looking at tax documents and . . . its database looks for those who avoid HMRC altogether”.
From 2018, international laws lead to the automatic exchange of information on financial accounts between tax authorities. These agreements, developed by the OECD and called the Common Reporting Standard (CRS), have been signed by 120 countries.
Participating nations include popular tax havens such as Switzerland, Bermuda, the British Virgin Islands and the Cayman Islands. Meanwhile, from 2027, the information sharing process will be expanded to include crypto asset exchanges.
HMRC uses algorithms to identify anomalies between offshore data records and its data on UK residents. The system then generates “nudge letters” that are sent to individuals when discrepancies are found.
Dawn Register, the tax dispute resolution partner at BDO, the accountancy firm, said it suspected that the information HMRC was receiving was now “more accurate and subject to greater analysis . . . using advanced AI technology”.
This greater analytical power is likely one of the factors driving the rise in tax reporting.
“Information and education about CRS and tax reporting has encouraged more people to come forward and report their UK tax affairs,” he added.
Individuals can declare unpaid tax on foreign assets using HMRC's global online reporting facility.
The maximum penalty for failure to declare offshore income can be up to 200 percent of the tax owed and in the most severe cases carries a prison sentence.
Coming forward to make a declaration after receiving a nudge letter “significantly reduces” the risk of penalties, Caddock said.
HMRC estimates that the tax gap – the difference between what is expected to be collected in tax and what is paid – was £39.8bn in 2022-23, with around £5.5bn possibly lost specifically to avoidance.
HMRC estimated, in data published earlier this year, that the under-reported tax by UK residents with foreign income was around £300 million in 2018-19. The analysis found that around 4 per cent of this group under-declared their tax liability to HMRC.