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The UK tax authority has announced plans to publish estimates of the amount of tax evaded by UK residents holding money offshore, a statistic which experts say could shine light on a key tax policy tax question.
In response to a parliamentary question this week, Lucy Frazer, financial secretary to the Treasury, said HM Revenue & Customs plans to calculate and publish “a new standalone offshore tax gap” in 2023, which estimates the amount of tax evasion and avoidance by UK taxpayers holding assets offshore.
Frazer’s comments follow a response in May to a freedom of information (FOI) request which disclosed that UK residents had £850bn in financial accounts overseas — of which £570bn was based in tax havens — in 2019, but it had not used the information to estimate the scale of tax evasion.
The figures came from financial data shared with HMRC by more than 100 countries since 2017, under international rules known as the Common Reporting Standard (CRS).
HMRC was criticised this year for not estimating what proportion of the foreign financial accounts have been “properly disclosed”.
“This is perhaps the most important public policy tax question: how much offshore tax evasion is there?” said Dan Neidle, founder of think-tank Tax Policy Associates, which sent the FOI request to HMRC.
“Back in the early 2010s there were estimates of trillions of dollars of undeclared and untaxed wealth offshore,” he said, adding that since automatic cross-border reporting was introduced in 2017 under the CRS, offshore tax evasion has become “much harder.”
“What we haven’t seen, is a big surge of tax revenues as those trillions of dollars get discovered in text,” Neidle said.
He suggested a range of reasons for this, including: the estimates were wrong, the estimates were right but undeclared accounts have been moved elsewhere, and large volumes of undeclared funds are still in offshore accounts.
“CRS gave HMRC huge amounts of data on assets and income outside the UK, but until now it has been unclear whether HMRC already knew about most of these cases, or whether they had the appetite or capability to check,” said John Barnett, chair of the Chartered Institute of Taxation’s technical policy and oversight committee.
“It now appears that we will soon have a better idea of the scale of offshore evasion than we have had before,” he added.
HMRC insisted the decision to publish an offshore tax gap was not as a result of the FOI request. “It was planned for Measuring Tax Gap 2022 edition, but due to the pandemic and delays in completing random inquiry programme cases, the results were not available in time,” the authority said.
Arun Advani, an assistant professor at the University of Warwick, said HMRC’s move to estimate the offshore tax gap was “great news”.
“Accurate estimation of the offshore tax gap will require HMRC to match CRS data to individual income tax data. Doing this will also make it easier to use the data for enforcement, by systematically picking up mismatches between individual declarations and the foreign-reported data,” he added.
Alex Cobham, chief executive at The Tax Justice Network, a pressure group which campaigned for the CRS for years before its introduction, urged HMRC to go one step further and publish estimates of the tax gap in individual offshore jurisdictions.
“That information has the potential to reveal the scale of undeclared assets of UK tax residents in each other jurisdiction, and to allow the government to demonstrate progress in closing the gap each year,” he said.
HMRC added: “We encourage any taxpayers who may have not declared the correct amount of offshore tax to review their affairs and, if necessary, to contact us to put their affairs in order.”
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