Recognized UK overseas tax evasion surges by 22%

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The number of Britons who admit they didn't pay tax on their overseas assets rose by almost a quarter in 2023-24, according to government data.

A total of 5,643 people admitted to HM Revenue & Customs that they had not paid enough tax on their overseas assets. This is an increase from 4,630 in 2022-23, which shows a 22% increase in data obtained under freedom of information requests.

The government pledged in its budget to raise billions of pounds by cracking down on tax evasion and avoidance, with HMRC funding 5,000 extra compliance officers.

Tax experts said the surge in tax evasion disclosures was caused by a number of factors. This included HMRC sending out a greater number of warning letters, receiving data on overseas matters from more countries and increasing public awareness of data sharing.

HMRC's aggressive pursuit of tax evaders now leaves them with little to hide, said Graham Caddock, director of tax investigations at Lubbock Fine, the advisory firm that issued the FOI request.

He added that tax authorities are looking for people who make good use of information received from overseas jurisdictions and check tax returns and databases to avoid HMRC altogether.

Since 2018, financial account information has been automatically exchanged between tax authorities in accordance with international regulations. These conventions, developed by the OECD and known as the Common Reporting Standard (CRS), have been signed by 120 countries.

Participating countries include popular tax havens such as Switzerland, Bermuda, the British Virgin Islands, and the Cayman Islands. Meanwhile, starting in 2027, the information sharing program is scheduled to be expanded to include cryptocurrency exchanges.

HMRC uses algorithms to identify anomalies between overseas data records and data for UK residents. The system then generates a nudge letter that is sent to the individual when a discrepancy is detected.

Dawn Register, tax dispute resolution partner at accountancy firm BDO, said she suspected the information HMRC was currently receiving would be more accurate and subject to further analysis using sophisticated AI technology.

This powerful analytical power is likely to be one of the factors driving the increase in tax disclosure.

Awareness and education about CRS and tax reporting has encouraged more people to come forward and provide up-to-date information on UK tax, she added.

Individuals can use HMRC's online worldwide disclosure facility to disclose tax owed on overseas assets.

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The maximum penalty for failing to disclose foreign income can be up to 200% of the tax owed, and in the most serious cases, imprisonment.

Caddock said disclosing the nudge letters after receiving them significantly reduced the risk of punishment.

HMRC estimates that the tax gap – the difference between the amount expected to be collected in tax and the amount payable – was $39.8 billion in 2022-23, with around $5.5 billion likely lost due to evasion, in particular.

In data published earlier this year, HMRC estimated that underreported tax liabilities by UK resident individuals with overseas income amounted to around $300 million in 2018-19. The analysis found that around 4% of this group under-reported their tax liabilities to HMRC.

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