Underpaid tax by wealthy individuals jumps 21% to £1.7bn

HMRC believes that wealthy individuals underpaid tax to the tune of £1.7bn in the 2022/3 tax year, meaning a 21% jump from £1.4bn in the previous year.

The government department has reportedly been taking a proactive approach in its efforts to narrow the tax gap. In autumn 2022, it invited wealthy individuals to take part in a ‘pre-filing’ conversation to prevent errors in tax returns. 

HMRC also made increasing use of ‘nudge letters’ where it suspects tax has been underpaid.

Wealthy individuals are common targets for HMRC, owing to the potentially high yield from investigations into their tax affairs. HMRC defines a ‘wealthy individual’ as one earning in excess of £200k per year or who has held assets equal to or above £2m in any of the previous three years.  

According to UHY Hacker Young, wage inflation coupled with the freezing of allowances, have dragged many more individuals into the additional rate tax bracket.

Neela Chauhan, private client partner at UHY Hacker Young, said: “The increasing popularity of employee share schemes and other incentives have resulted in complicated tax affairs. Many individuals may not be aware that they have outstanding tax liabilities.

“HMRC has ramped up its use of nudge letters, as these are an efficient and cost-effective means of communication and may prevent the need to open a full investigation.”  

Another factor driving the increase is the wealth of information that HMRC has at its disposal, from international tax authorities as part of the Common Reporting Standard.