UK Tax Authority Ensures HNWIs Pay Their Bills

UK Tax Authority Ensures HNWIs Pay Their Bills

The UK tax authority, Her Majesty’s Revenue and Customs, or HMRC, has set out in a new guide its relationship with High Net Worth Individuals (HNWIs) and how it makes sure that they pay their tax bills.

HMRC categorises “wealthy individuals” as those with a net worth of £20m (approximately $32m US), and these people are dealt with by the High Net Worth Unit (HNWU), which was set up five years ago. Some 6,200 people registered as living in the UK, or eligible for tax in the UK, come into this category. It is estimated that they pay the UK Treasury between £3bn and £4bn each year.

Rather like the way banks deal with higher earning customers, the HNWU assigns a customer relationship manager (CRM) to each HNWI it identifies. On a day-to-day basis, the CRM keeps a check on the client’s tax affairs and deals with their tax agents. Normally, this is a straightforward process, but the CRM is also charged with ensuring that the HNWI does not present a risk of not paying any tax which is due.

To assist in this task, the CRM can call on the help of a number of teams of specialist technical advisers. These teams are aimed at specific areas, such as clients who are connected to the finance sector; those who have rapidly increasing wealth; and international investors.

There is an Analysis and Intelligence Unit, which monitors the behaviour and financial structures of wealthy individuals, ensuring that HMRC remains abreast of developments; and a Dispute Resolution team, which deals specifically with any disputes between HMRC and the identified HNWIs in line with the department’s litigation and settlements strategy.

Where HMRC suspects that individuals may be avoiding tax, it issues “follower notices” and “accelerated payment” notices, especially where it believes that those individuals are involved in tax avoidance schemes.

Another method for dealing with possible tax avoidance – though one which HMRC does not publicise widely – is making payments to those who assist the tax authority with its enquiries into tax avoidance. These people may be disgruntled employees (or, frequently, ex-employees) of a wealthy individual; or often former spouses following a divorce.

HMRC will look carefully into the circumstances of any information given, to ensure that the former employee or wife or husband is not simply after personal revenge; and also, of course, to make sure that they themselves are not eligible for unpaid tax following the collapse of the relationship, be it professional or personal.

Such a system run by the Internal Revenue Service (IRS) in the USA gives the informant 30% of the extra tax or penalty which their information brings in. HMRC does not yet have a fixed amount but is believed to be looking closely at the American system. According to the latest figures, HMRC paid out a little over £400,000 for information in 2013.

The tax authority says that thanks to the work of the HNWU, more than £1bn in additional revenue has been brought in since the unit was formed in 2009, much more than was anticipated. In 2013-2014, the HNWU was targeted to bring in £20m. It actually achieved £268m in extra revenue. It has also led to a significant reduction in the number of outstanding tax returns. In 2009, 11.9% of tax returns went unfiled; for the tax year 2013-2014, this was down to just 3.4%.

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