The tax office has boosted the number of inspectors in its so-called Affluent Unit so that it can scrutinse the financial affairs of middle-class families, accountants claim.
The unit has taken on 68 new inspectors this year, creating a staff of 395 to investigate those with an annual income of more than £150,000, or a net worth of £1 million. This will include large numbers of ordinary people who are asset-rich because of the surge in house prices.
“No stone is being left unturned as the expanding Affluent Unit looks to squeeze the middle class for more tax revenue,” says Dominic Arnold, a partner at Moore Stephens, the accountancy firm.
“The growth of the unit shows how Revenue & Customs [HMRC] is now focusing its attention on professionals and entrepreneurs who may be only just inside the upper tax bracket. The middle class is next.”
However, a spokesman for HMRC says: “Affluent individuals represent a greater tax risk than the rest of the population because they are more likely to have more complex tax affairs. It makes sense for HMRC to provide close scrutiny of them.
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“Taxpayers whose affairs are in order have nothing to worry about.”
With the self-assessment tax return deadline of January 31 fast approaching, 3.3 million people have yet to file their accounts. About 11 million people are expected to file online this year and the signs are that more people are filing earlier. HMRC has had 1.56 million returns so far this month, compared with 1.39 million in January last year — a 12.3 per cent increase.
HMRC is becoming increasingly sophisticated in its investigations. In addition to the Affluent Unit, it has a High Net Worth Unit to deal with the affairs of people who have higher than average assets. It also uses its Connect computer system to cross-reference returns against data gathered from a multitude of sources, including banks and building societies in the UK and overseas, the Land Registry, Paypal, eBay and Airbnb.
“HMRC is under political pressure to perform within its budget and it has ramped up its activity this year as the government tries to maximise tax-take without increasing headline rates of tax. More inspectors in the Affluent Unit will more than pay for themselves, especially if HMRC obtains new powers of investigation,” says Mr Arnold.
HMRC is one of the bodies that is to be given access to people’s internet connection records without a warrant under the Investigatory Powers Act 2016, the so-called snooper’s charter.
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“Taxpayers who think they might be within the remit of the expanding Affluent Unit should check their tax affairs are in order. Some of the parameters HMRC is using to determine who faces scrutiny are fairly unrefined,” says Mr Arnold.
HMRC has run several high-profile voluntary disclosure campaigns targeting specific groups of middle-class professionals, including solicitors, doctors and dentists. It has also used “nudge” tactics, borrowed from the government’s behavioural insights team, set up to make public services cheaper and easier to use. Its tactics aim gently to persuade people to pay on time or to correct mistakes in their returns. This included sending a letter out over Christmas to those it suspected might have underpaid the tax due on interest they received from savings and investments.
However, George Bull, a senior tax partner at RSM, says: “We are concerned that changes within HMRC, and increased information flows, could lead to more individuals being inquired into, with associated professional costs for the taxpayer, and in many cases no additional tax being due to HMRC.”
Last year the High Net Worth Unit reduced its entry criteria by £10 million, so that it now investigates individuals with wealth greater than £10 million. Previously it dealt with just more than 6,000 taxpayers who were each assigned a customer relationship manager to work with them and their accountants to understand their often complex financial affairs.
Mr Bull says that the tax office is targeting 100 criminal prosecutions a year from this group, rather than the previous target of two a year.
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The people who need to file a self- assessment tax return, for the year from April 6, 2015 to April 5 last year, include those who earned more then £100,000; those claiming child benefit on an income of more than £50,000; those earning money from freelance or self-employed work; and anyone who was paid more than £2,500 in untaxed income, including from savings and investments.
If you miss this month’s deadline you will be charged a penalty of £100. Beyond three months late you will also need to pay a daily penalty of £10 per day for up to 90 days. HMRC has 12 months in which it can raise questions about your return.
Find out more at www.gov.uk.
Tax form errors
● Failing to complete all the pages of your return
●Missing out capital gains tax calculations
●Adding income from different sources of employment together
●Not completing all the supplementary pages
●Not including country codes on foreign income pages
●Failing to complete the total amounts on each page
●Forgetting to include PAYE information
●Missing vital information from free format boxes, such as appeals
Source: HMRC
