UK ‘fails to assess scale’ of tax evasion from offshore accounts

British residents hold some £570bn in offshore tax havens, international reporting regime reveals

Campaigners outside a meeting of EU finance ministers in 2017 stage a protest on a mock tropical island beach representing a tax haven. Reuters

UK authorities have failed to assess the scale of tax evasion from an estimated £570 billion held by British residents in overseas tax havens, according to a series of freedom of information requests.

The UK’s tax agency (HMRC) said it had received information from foreign banks showing that British residents held some £849bn in 6.4 million foreign accounts in 2019. Two-thirds of it - a similar amount to the annual GDP of Luxembourg - is held in tax havens.

But HMRC said it had not carried out any assessment of how much tax had been evaded by cross-checking with individuals’ annual returns. The admission comes as the UK grapples with a growing economic and cost-of living crisis with surging food and fuel prices.

“We have not produced or received any estimates, analysis or statistical information as to what proportion of the foreign financial accounts have been ‘properly disclosed’, nor can this be accurately inferred in the data we hold,” the agency said in its response to freedom of information requests by think tank Tax Policy Associates.

The UK has obtained data on sums held in foreign bank accounts since 2017 following the introduction of a system known as the Common Reporting Standard (CRS).

About 100 countries have signed up to exchange cross-border banking information following a series of tax avoidance scandals.

All British taxpayers — except for non-doms who only pay tax on UK income — have to declare income from foreign accounts on their annual tax returns.

The CRS programme has revealed large-scale offshoring with tax authorities worldwide, obtaining data on 84 million accounts held by their residents amounting to about €10 trillion in 2019, according to the Organisation for Economic Co-operation and Development (OECD).

The information about the £849bn came from the CRS, but critics said that the failure to analyse the information could allow tax evaders to slip through the gaps.

“The UK government’s failure to exploit data to combat offshore tax abuse of the richest households is ongoing during a period of rising child poverty and a host of other social ills,” said Alex Cobham, the chief executive of the Tax Justice Network, on Twitter.

“These are powerful choices with human consequences.”

Holding money in an offshore tax haven is not illegal and the majority of the cash is likely to be held there for legitimate purposes, said Dan Neidle, of Tax Policy Associates.

Hedge funds often set up in tax havens to avoid paying a form of double taxation.

“I expect a substantial part of the £570bn reflects fund holdings, and that almost all of this is properly declared to HMRC,” Mr Neidle wrote in a blog.

“What is clear is that HMRC have made no attempt to estimate the scale of the offshore tax evasion problem, or even determine if it is a problem,” he wrote.

HMRC has been approached for comment. It told the FT, which first reported the story, that it rejected claims that it was not checking the data.

“The CRS provides us with more of the critical information we need for our compliance activity and is playing a major role in helping us to tackle tax evasion and avoidance,” it told the newspaper.