The National Audit Office (NAO) issued a report yesterday that suggested:
HM Revenue & Customs (HMRC) defines wealthy individuals as those earning more than £200,000 a year, or with assets over £2 million, in any of the last three years. In 2023-24, HMRC identified approximately 850,000 individuals as wealthy, around 2% of individual UK taxpayers.
They added:
Wealthy individuals often have complicated tax affairs covering multiple taxes. They often have a wide spread of tax liabilities on both their income (in the form of Income Tax and National Insurance) and assets (in the form of Capital Gains Tax, Inheritance Tax and stamp duties).
Wealthy individuals may adopt complex and sophisticated tax planning to reduce these liabilities. The complexity of their tax affairs may increase the potential for non-compliant behaviour, either deliberately in the form of tax avoidance or evasion, or mistakenly, by applying tax rules incorrectly. HMRC therefore treats wealthy individuals separately from other individual taxpayers.
That explains why the Revenue focuses more attention on them, and the NAO has paid attention to this issue, and most especially HMRC's understanding of the risk of non-compliance among wealthy individuals.
The NAO concluded that:
Wealthy people contribute significant amounts of tax revenue to the Exchequer, but the complexity of their affairs makes it more difficult to get their taxes right and presents more opportunities to deliberately not pay enough. HMRC has responded to this by becoming one of the few countries to publish annual estimates of the tax gap for wealthy individuals, which HMRC estimates to have been stable and low.
They note that:
HMRC deserves credit for increasing the amount of compliance yield. Its move towards more upstream casework has been an important innovation and has resulted in improved returns.
I share in giving them credit for publishing these estimates. The problem with them is that they have always been methodologically weak, and they have now become exercises in routine management self-congratulation. The farce is reinforced by the fact that the tax gap has always been a figure of around £35bn.
The NAO appear to have noticed this, saying:
While it is difficult to make precise comparisons between compliance yield and the tax gap, the scale of the increase in compliance yield from the wealthy raises questions about whether underlying levels of wealthy non-compliance are higher than HMRC previously thought.
I agree: it suggests a serious prior underestimation of abuse.
They then added:
There is too much uncertainty around the tax gap estimate for this group, notably for offshore wealth, to be confident that non-compliance is not far higher than HMRC has detected. HMRC is working to improve its estimate of the wealthy tax gap.
It's only taken fifteen years to get this far. The same is true on this:
HMRC has recognised it needs to give the risk posed by wealthy individuals much greater prominence. Its work to tackle wealthy non-compliance is dispersed across different parts of HMRC, and it should ensure it has a comprehensive and ambitious strategy to tackle non-compliance among the wealthiest individuals. It should also provide sufficient transparency to give greater confidence to the wider taxpayer base that all taxpayers contribute their fair share.
I have been asking for this since 2008. Better late than never, I guess.
I asked ChatGPT to summarise my own, fairly considerable, output on this issue, and it offered this. It's not completely correct, but it will do:
Richard Murphy on the Tax Gap: A Summary
Richard Murphy has written extensively on the UK tax gap, and is credited with helping to bring the concept into mainstream UK political debate. His work challenges both the methodology and scope of HMRC's approach, and he offers a broader conceptual framework for understanding the tax gap.
1. The Core of Murphy's Argument
Murphy contends that HMRC significantly underestimates the UK tax gap, both in magnitude and in definition. He criticises HMRC for producing what he sees as narrow, overly technical, and politically convenient estimates.
2. Criticism of HMRC's Methodology
A.
Over-reliance on Bottom-Up Data
Murphy argues that HMRC relies too heavily on bottom-up data, such as:
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Tax returns,
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Audit samples,
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Compliance checks.
This bottom-up approach tends to:
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Understate the tax gap, especially where no returns are submitted (e.g., in the shadow economy),
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Miss systemic or structural avoidance,
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Assume compliance where there is no audit or investigation.
B.
Call for More Top-Down Approaches
In contrast, Murphy advocates for more top-down methods, such as:
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National accounting data (like ONS GDP figures),
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Sectoral income estimates,
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Macro-level comparison of expected vs. reported income or tax.
These provide an aggregate view of how much tax should be collected, offering a counterbalance to incomplete self-reported data.
3. The Five-Tier Tax Gap Model
Murphy argues for a five-part model of the tax gap, which he believes provides a more comprehensive understanding. His categories are:
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Tax avoidance – Legal exploitation of loopholes to reduce liabilities.
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Tax evasion – Illegal non-payment or underpayment of tax.
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Tax not paid due to the hidden economy – Income or business activity that is entirely unreported.
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Tax lost due to non-collection – HMRC failing to pursue or enforce debts.
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Tax policy gap – Revenue lost because of deliberate policy choices (e.g. low rates, exemptions).
Note: HMRC typically excludes the fifth category (the tax policy gap), which Murphy sees as a major omission. He believes this reflects political decisions that deprive the public sector of funds.
4. Key Criticisms of HMRC
A.
Political Framing
Murphy accuses HMRC of crafting a politically safe narrative that downplays systemic issues. By keeping the tax gap estimate modest, HMRC reduces pressure for:
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Increased enforcement,
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More aggressive policy on avoidance,
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Greater investment in tax administration.
B.
Lack of Transparency
He criticises HMRC's opaque methods, limited disclosure of assumptions, and inaccessibility of raw data.
C.
Underestimation of Corporate and Wealthy Tax Abuse
Murphy argues that corporate tax avoidance and offshore evasion are drastically underrepresented in HMRC's figures.
D.
Neglect of Enforcement and Resources
He regularly highlights understaffing at HMRC, noting that budget cuts have weakened its capacity to pursue complex or large-scale cases.
5. Policy Recommendations
Murphy calls for:
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Greater use of top-down tax gap estimation, especially for sectors prone to underreporting.
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Adoption of his five-part model to reflect the true scope of tax losses.
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More HMRC staffing and funding.
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Transparency and independent oversight of tax gap methodology.
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Political debate about the tax policy gap, including the ethics of tax planning and rate setting.
Conclusion
Richard Murphy presents a broader, more critical, and more politically engaged view of the tax gap than HMRC. He critiques their reliance on bottom-up data, proposes a five-tier model to better reflect real losses, and calls for systemic reform to make tax collection more effective, transparent, and fair.
Let me know if you'd like a summary table or quotes from his key publications like “The Missing Billions” or “In The Tax Gap”.
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What the National Audit Office (NAO) exposes — and what HMRC indirectly admits — is a failure not just of enforcement, but of political will from Starmer’s Government & previous governments.
The core issue isn’t complexity. Complexity is a cover. It’s a system design — carefully maintained — that enables wealth to escape fair taxation.
The UK’s approach to wealthy taxpayers has too often been reactive, fragmented, and fundamentally deferential. HMRC has long acknowledged the challenges of offshore wealth, shell structures, and inheritance loopholes, yet enforcement has been piecemeal. As the NAO points out, the estimated tax gap may be “stable and low” only because HMRC has been too timid or too under-resourced to see the full picture.
If we accept that compliance yield has risen, the logical conclusion is not that the system is working, but that wealthy non-compliance has been systematically undercounted for years. And while it’s true HMRC has made some gains, they’re measured not against actual liability, but against its own (potentially flawed) expectations.
What we need change:
1. End Secrecy Jurisdictions: Mandate Transparent Beneficial Ownership
Offshore wealth remains a major blind spot. The UK — and especially its Crown Dependencies and Overseas Territories — continues to provide the infrastructure for global tax avoidance. Public, searchable registers of beneficial ownership must be made non-negotiable and enforced. No more anonymous shell companies holding or funnelling billions in assets.
2. Strengthen GAAR (General Anti-Abuse Rule) and Close Loopholes
The current GAAR is too weak. It requires HMRC to prove that tax planning is “abusive,” which is hard to define and harder to prove. A broader anti-avoidance principle, like Australia’s “principal purpose” test, would give HMRC sharper teeth: if the main purpose of a transaction is to reduce tax, it’s disallowed. Full stop.
3. Establish a Wealth Office Within HMRC
Right now, wealthy individual compliance is scattered across departments. HMRC should establish a dedicated, integrated Wealth Office, with the authority to investigate complex structures, launch audits, and coordinate across domestic and international agencies.
4. Name and Shame Major Avoiders
Transparency is a deterrent. If corporations can be named for underpaying workers or polluting rivers, then individuals and advisors engaging in egregious tax avoidance should be named when found guilty in tribunal or court. This isn’t about scapegoating — it’s about restoring public confidence.
5. Regulate the Tax Advice Industry
Accountants and lawyers who facilitate avoidance schemes face almost no consequences. Create an HMRC licensing regime for tax advisors. Strip the credentials of those promoting aggressive schemes and make reporting of suspected abuse by advisors mandatory under professional conduct codes.
6. Introduce a Minimum Effective Tax Rate
Borrowing from proposals by economists like Thomas Piketty, introduce a minimum effective tax rate for anyone earning over £500,000 or holding assets over £5 million. This would close the gap between the ultra-wealthy who live off capital gains (taxed at lower rates) and ordinary earners who pay full income tax and National Insurance.
7. Publicly Funded Forensic Audits
Rather than letting HMRC struggle alone, a ring-fenced fund — possibly overseen by the NAO — could be used to commission third-party forensic tax audits of avoidance schemes and patterns among the top 1% of earners.
This isn’t just a question of revenue — it’s a matter of public trust. Every pound dodged by the wealthy is a pound that could fund nurses, teachers, and social care. If HMRC and the Starmer’s government continue to operate under the polite fiction that complexity, not design, is the issue, then Britain will only become even more unequal and disillusioned.
The time for timid reforms is over. Starmer’s Government & HMRC must stop seeing themselves as managers of non-compliance and become fearless enforcers of tax justice. The NAO has thrown open the curtain — now it’s time for Starmer’s government, and the public, to demand real accountability from those at the top.
Much to agree with
I, mind you, helped write the GAAR rules, but I always wanted a stronger general anti-avoidance principle.
“HMRC must stop seeing themselves as managers of non-compliance”.
HMRC has been managing non-compliance?
@Bryan R
“This isn’t just a question of revenue […] Every pound dodged by the wealthy is a pound that could fund nurses, teachers, and social care.”
Surely this is not so.
Doesn’t MMT research show us that taxes paid merely reduce the deficit? They do not *fund* government spending.
All government spending is new money creation using a loan from the Bank of England. If the government chooses (and Parliament approves) all nurses, teachers and social care can be funded right now if the resources (labour) are available to purchase.
But they are money recovered
On Bryan’s first point about transparent beneficial ownership. I wonder if a general rule that any transfers to an opaque fund, should be treated as pure profit and so taxable at the highest rate in the nation of origin. This general rule would mean transfers to open tax havens, would see an advantage. But secretive would suffer. It might help change minds about secrecy.
Though personally, I’d like to see taxation to be based on the area of the activity, right down go VAT and business rates, so local government got first cut of funds then national governments. It would make evasion much harder without corruption in the tax offices, it would also provide the networked manpower to to the top down overviews Richard calls for. ( I hope using first names is acceptable to all. Forgive me if I err.)
I am Richard to everyone I know, except some local baristas who insist on calling me Prof.
@ Bryan R
“Starmer’s Government & HMRC must stop seeing themselves as managers of non-compliance and become fearless enforcers of tax justice. ”
Yeah Right. Fat chance of that methinks.
I have no idea how we will ever get a decent government from the position we now find ourselves in.
I agree with Bryan – the government virtue signals being rich instead of thinking about compliance. It also ignores the inflationary effects of this none-collected money might cause, no doubt because they still believe in trickle down.
This could reduced the government debt which of course a major concern of the government???
Yes…..
Is every person in a cohort of about 850,000 adopting complex and sophisticated tax planning to artificially reduce their tax liabilities, or engaging in other non-compliant behaviour?
Some undoubtedly are, just as there are (for example) benefits claimants with undeclared income, and small traders who don’t register for income tax or VAT.
But in experience, by and large, no. Many of the people towards the top of the income or wealth distribution (senior doctors, engineers, lawyers, IT professionals, airline pilots, bankers and investment managers, sportspeople, executives in a variety of business sectors) can afford professional advice to make sure they are compliant. Like most people, they just want to pay the amount they are obliged to pay, as simply as possible.
If as a cohort they are not paying enough tax, it is because the tax system allows that.
I ran an accounting practice on the basis that we would never provide advice on artificial mechanisms to save tax, or advise anything where the economic substance of the transaction did not match the form in which it was reported for taxation purposes. The basic promise was that you could sleep at night with the advice that we provided, and that was incredibly popular. People liked it.
I always recall the person that I was asked to visit by a West End financial advisor. That person had made a capital gain of around £5 million. The advisor was trying to persuade that person to roll the gain over, which they could’ve done in its entirety, thereby avoiding a current tax bill. The person was very near the time limit for making the reinvestment. I went to see him and realised that all he wanted to do was actually pay the tax. I told him that he could. Told him to get out his chequebook. Told him to write the cheque. Told him to send it to the revenue right there and then. He did. He was delighted. Nobody had given him the permission to do that, which is what he wanted from someone. He was happy to pay a fee of £1000 for my advice. The financial advisor never referred another person to me, ever again.
@ Andrew
“If as a cohort they are not paying enough tax, it is because the tax system allows that.”
Yes I think that sums up a major part of Richard’s position. Under-funding and under-staffing of HMRC and no political commitment to see fair taxation. The NAO seems to be endorsing that conclusion. A tax system inadequately enforced is not really a system is it?
The road outside my front gate is supposedly subject to a 20 mph speed restriction. The average speed of passing vehicles is probably nearer 35 mph and sometimes faster. Without enforcement any legislation will be largely ignored.
The net result is that those people who DO comply end up feeling as if they are perhaps stupid.
This is not how a society should function.
You understand what I have been saying for years
The Sunday Times Rich List shows how undertaxation of very high earners and the already wealthy, has created monstrous levels of inequality.
Just how many 100s of Millions of £ does anyone or any family really need?
https://www.thetimes.com/sunday-times-rich-list
Things have gone too far.
i have been doing my own tax returns for many years rather than an accountant as they are always advising me to do this or that scheme and i am not interested. next year i will have to employ an accountant to do it as i have a sale of land for development and i worry about filling the forms wrong for CGT, can you advise me of a reputable straightforward firm of accountants in dorset who will do the right thing and help me pay the right tax
Sorry, but I can’t
Timothy: If you’ve done your own tax return for several years I expect you could continue to do that. (I have for many years because my tax affairs are pretty simple.).
If you want some professional support, I’d suggest looking for an advisor who is a member of the Chartered Institute of Taxation. It is no guarantee but they do at least have a robust qualification process and professional standards.
By the way, if you are selling UK land, depending on the circumstances, you may need to report the gain and paying the tax within 60 days.
https://www.litrg.org.uk/savings-property/capital-gains-tax/capital-gains-tax-reporting
https://www.gov.uk/report-and-pay-your-capital-gains-tax/if-you-sold-a-property-in-the-uk-on-or-after-6-april-2020
Thanks
thanks Andrew
looking at the weblink, i dont think the 60 day reporting requirement applies in my case, but although i am quite happy doing my tax returns normally, on the sale of this land there are lots of deductions and prior costs and repayments of advances and option fees and it is all too complex for my simple brain to process, so i do need an accountant to calculate what amounts are allowable against the proceeds and what are not, and i do need straightforward guidance