Government pledges more resources to tackle tax avoidance by high earners

In a speech addressing the Liberal Democrats' annual conference in Brighton, Danny Alexander said that the department's Affluent Unit, which employs 200 specialists to identify areas where wealthy individuals are avoiding or evading taxes and duties, will be expanded to consider the tax affairs of a further 200,000 individuals. The team working on the Liechtenstein Disclosure Facility (LDF), an information-sharing arrangement between the governments of the UK and Liechtenstein, will also be expanded.

"The vast majority of [wealthy taxpayers] pay their fair share," Alexander said. "We have this message to the small minority of wealthy people who don't play by the rules: we are coming to get you and you will pay your fair share."

HMRC and the Cabinet Office have also been tasked with examining how the public procurement process can be improved in order to prevent firms that engage in tax evasion and aggressive tax avoidance schemes from winning Government contracts.

Alexander said that the HMRC team working on the LDF would be "doubled in size", in order to help it bring in an estimated £3 billion worth of undisclosed tax by April 2016. The agreement, which was signed in August 2009, allows investors in Liechtenstein who are liable to pay UK tax to disclose any unpaid tax to HMRC and avoid the risk of criminal prosecution. Investors who take advantage of the LDF are liable, in most cases, to pay a 10% fixed penalty for years up to and including 2008-09 on the underpaid liabilities. The level of penalty for later years will depend on a person's circumstances. Taxpayers will not have to pay a penalty if the unpaid amount relates to an "innocent error".

HMRC originally estimated that 2,000 people in total would register for the facility, allowing it to reclaim £1 billion in tax. However, the arrangement has proved so popular that it has already been extended for a year, having originally been set to run until 31 March 2015.

"The LDF is a fantastic opportunity for taxpayers to get their affairs in order," said tax expert Phil Berwick of Pinsent Masons, the law firm behind Out-Law.com. "We have guided many taxpayers through the process."

Changes to the structure of HMRC's Affluent Unit, announced by Alexander, will see it expanded to deal with taxpayers with a net worth of at least £1 million instead of the current £2.5m threshold. The unit, which launched in October 2011, will recruit a further 100 inspectors and specialists to handle the increased work load.

Tax expert Ray McCann of Pinsent Masons said that it was clear from the announcement that the Government saw "strong potential" for recovering "substantial additional tax liabilities" from even moderately well-off individuals.

"Many such taxpayers assume that they understand and can complete their self assessment tax returns without professional help; however, the complexity of capital gains and other taxes as well as numerous anti-avoidance rules make mistakes inevitable," he said. "It is certain that there will be more investigations and together with HMRC's much tougher approach to penalties, some taxpayers may be faced with a very substantial back tax bill."