In June 2022, Lucy Frazer, then the financial secretary to the Treasury, pledged to disclose figures on the offshore tax gap. Despite this commitment, the release has been repeatedly postponed.
A report published by HMRC on 20 June this year, four weeks after the election was called, estimated the total tax gap for the 2022-23 tax year to be £39.8bn. This tax gap represents the difference between the amount of tax owed and the amount actually paid. However, HMRC withheld a breakdown of figures related to ‘non-compliance by UK residents failing to declare their offshore income,’ citing civil servants’ guidelines during the election period which recommend against statistical activities that could compete for public attention with parliamentary candidates.
The investigative thinktank TaxWatch has contested this decision, arguing that if the offshore tax gap figures were deemed too contentious, then the release of other tax gap figures ought to have been delayed as well. Claire Aston, director of TaxWatch, stated, ‘The main political parties pledged in their election manifestos to raise more revenue by closing the tax gap, and given that, these figures should not have been held back.’ Pressure on HMRC to estimate the offshore tax gap has been mounting since September 2021, when HMRC revealed to Tax Policy Associates that UK taxpayers held nearly £570bn in tax havens. Despite this disclosure, HMRC had not produced estimates on the amount of foreign financial accounts that were inadequately disclosed.
The implementation of the OECD’s common reporting standard in 2014 has facilitated the automatic exchange of financial information between partner countries, aiding in combating tax evasion. This standard obligates UK residents with overseas bank accounts to report balances and interest annually to HMRC, thus providing valuable data for tax officials. Steven Porter, head of tax disputes and investigations at law firm Pinsent Masons, expressed scepticism about discovering significant new revenue from offshore tax avoidance due to stricter penalties and increased public awareness. He noted that although some individuals may persist in evasion, they are becoming increasingly rare. Porter estimated the total gross tax gap for individuals who complete self-assessment tax returns to be around £2bn, with the offshore tax gap likely being a smaller portion of that amount.
Labour has committed to raising over £5.2bn by 2028-29 through curbing tax avoidance and closing loopholes, including those exploited by non-domiciled individuals to avoid UK taxes. The Chartered Institute of Taxation has acknowledged that while the tax gap, which was 4.8% of theoretical UK tax liabilities in 2022-23, can be reduced, achieving further significant gains will be challenging. They cautioned politicians against prematurely spending projected revenues from these efforts. An HMRC spokesperson defended the agency’s record, stating, ‘We have a strong track record in tackling offshore non-compliance. Since the launch of our No Safe Havens strategy in 2019, we have secured almost £700m from offshore initiatives.’
The continued delay in publishing offshore tax avoidance figures has sparked significant debate and scrutiny. While HMRC cites adherence to election guidelines, critics argue that transparency should not be compromised, especially when major political parties have pledged to address the tax gap in their manifestos.
