Accountants & Business Advisers

HMRC's Increased Focus on Targeting Wealthy Individuals: Impact on agricultural businesses

HMRC's Increased Focus on Targeting Wealthy Individuals: Impact on agricultural businesses

In recent years, HM Revenue & Customs (HMRC) has intensified its efforts to ensure that wealthy individuals in the UK are paying their fair share of taxes. This increased focus is part of a broader strategy to reduce the tax gap and ensure compliance among high-income earners and those with significant assets.

Definition of Wealthy Individuals

According to HMRC and corroborated by the National Audit Office, a "Wealthy" individual is defined as someone with an income of £200,000 or more, or assets of £2 million or more, in any of the last three years. As of the 2023–24 tax year, this group includes approximately 850,000 individuals, representing about 2% of UK taxpayers.

HMRC Wealthy Unit

The HMRC Wealthy Unit, also known as WMBC (Wealthy & Mid-sized Business Compliance), is a specialist team tasked with monitoring high-risk individuals for tax avoidance or evasion. This unit conducts targeted enquiries, often involving offshore structures, trusts, and complex investment vehicles. They use advanced data analytics and third-party data (e.g., CRS, Trust Register, CARF) to identify discrepancies.

HMRC are taking several steps to enhance its compliance efforts, with some of the key areas listed below:

  • Recruitment: HMRC is recruiting 500 new compliance officers from April 2025 to reduce the tax gap
  • Investment in Offshore Tax Compliance: HMRC is investing in offshore tax compliance, with 400 additional staff over five years expected to yield over £500 million by 2030
  • Debt Collection: HMRC is expanding debt collection through third-party agencies, targeting £44.3 billion in unpaid tax

Impact on Rural Farms and Estates

The increased focus by HMRC on wealthy individuals has significant implications for farms and estates. Our experience with clients regarding HMRC enquiries has highlighted several key areas of focus:

  • Diversified Businesses: HMRC's central technical team oversees extensive information gathering to deny loss relief and restrict the ability to relieve current year losses against other income in the year. This scrutiny can impact diversified rural businesses, such as those combining farming with other activities like event hosting or storage services
  • Key Areas of Attack: HMRC scrutinises whether the business is trading or investment, trading with a view to profit, the activity level of individuals in the business, and whether there are separate trades. For rural estates, this means careful examination of whether activities like farming and other ventures are considered separate trades or part of a single business

What can be done to help ensure compliance?

To ensure compliance with HMRC's increased focus on wealthy individuals, rural estates should take the following steps:

  1. Maintain Accurate Records: Ensure that all financial records, including income, expenses, and investments, are meticulously documented. This includes keeping detailed records of all diversified business activities
  2. Review Business Structure: Regularly review the business structure to determine whether activities are classified as trading or investment. Ensure that the business is trading with a view to profit and that the activity level of individuals in the business is adequately documented
  3. Separate Trades: Clearly distinguish between different trades within the business. For example, if the estate includes farming and other ventures, ensure that these are considered separate trades or part of a single business
  4. Seek Professional Advice: Consult with tax professionals or advisors who can provide guidance on compliance with HMRC regulations and help identify potential areas of concern
  5. Stay Informed: Keep up-to-date with changes in tax laws and HMRC guidelines. This includes understanding recent reforms to agricultural property relief (APR) and business property relief (BPR) from inheritance tax
  6. Prepare for Enquiries: Be prepared for HMRC enquiries by having all necessary documentation readily available
  7. Implement Robust Internal Controls: Establish and maintain robust internal controls to ensure compliance with tax regulations. This includes regular audits and reviews of financial records and business activities

Conclusion

HMRC's increased focus on wealthy individuals, including those in rural areas, is part of a broader strategy to ensure tax compliance and reduce the tax gap. By recruiting more compliance officers, investing in offshore tax compliance, and expanding debt collection efforts, HMRC aims to ensure that all taxpayers, including those with significant rural assets, pay their fair share. Rural estates and farms must stay informed and prepared to maintain compliance and protect their financial stability.

To discuss this in further detail or to speak with one of our Farms and Estates experts, please click here.