HMRC examines affluent earners

Wednesday 18 November 2015

HM Customs and Revenue (HMRC) has sent strong signals that it intends to crack down on tax avoidance amongst affluent individuals (defined as those with an annual income of £150,000 or more), as a result of budget cuts and government pressure to collect more revenue.

The move marks a significant shift from the unit’s previous tactic of focusing on taxpayers with a high net worth - typically those earning more than £1 million per year. The change means that a much wider variety of people will be scrutinised by the organisation’s Affluent Unit than was previously the case, and many highly skilled contractors will find themselves in this category.

Over the past two year, the number of employees in the Affluent Unit, which was set up in 2011, has increased by 54 per cent. The amount HMRC spends on the unit each year has increased from £7.8 million to £13.1 million - a rise of 68 per cent. This shows that it is prepared to make a serious investment to increase revenue from high earners, and that it expects to collect a substantial amount as a result of its increased scrutiny and broader categorisation.

An HMRC spokesperson told the Telegraph: "We are better than ever at moving resource to risk as these figures of extra staff deployed tackling non-compliance clearly show. Anyone who has not paid the tax they owe should get in touch with us urgently as coming forward means a lower penalty."

There are a number of factors that can make an individual more likely to be examined by the Affluent Unit. These include holding offshore bank accounts or property, owning a large amount of property in the UK, having been previously involved in a tax planning scheme, paying a low amount of income tax despite high earnings (even if done legally) and filing late self-assessments.

While those who are acting in accordance with the law should not be concerned by this development, any high-earning contractors who are unsure about their tax arrangements should discuss the matter with their specialist accountant, who will be able to make sure that everything is in order and answer any questions they may have.

While the tax affairs of contractors are often less straightforward than those of their Pay As You Earn cousins, there has been no suggestion that HMRC is particularly keen to target freelancers, instead insisting that their focus is on those who do not pay their fair share - regardless of working arrangements.

Given this news, it makes more sense than ever for the relevant contractors to make sure that they submit their self-assessment forms and other HMRC documentation within good time, to help avoid coming under unnecessary investigation.

It is also advisable to ensure that all business-related record-keeping is well-organised and accessible, as this is a great help in making sure that accounting and tax declarations can be carried out accurately and efficiently.

By Victoria McDonnell

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