Your IndustryMar 26 2015

Advisers drawn into tax avoidance crackdown

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by

Advisers will soon need to warn clients with offshore accounts about the government wanting to keep closer tabs on tax avoidance.

HMRC revealed the government will bring in legislation under which financial intermediaries can be required to notify their UK resident customers with UK or overseas accounts about the Common Reporting Standard.

Advisers will also have to warn their clients about the penalties for evasion and the opportunities to disclose.

It was back in 2014 that the UK and various overseas jurisdictions agreed to adopt the Common Reporting Standard on financial account information.

Alongside dragging advisers into their attempts to increase their tax take, in the Budget the government also announced it will introduce a criminal offence for those who persistently enter into tax avoidance schemes.

These rules will include a special reporting requirement and a surcharge on individuals whose latest tax return is inaccurate as a result of a further failed avoidance scheme.

The government will also look to restrict access to reliefs for individuals identified as having a record of trying to abuse them through avoidance schemes that don’t work.

Disclosure changes

But our experts warn the tax evasion crackdown that should be of greatest concern to advisers is buried deep in the official Budget Report.

Our tax experts say the decision to close the various facilities currently available to disclose tax irregularities early at the end of 2015 rather than during 2016 requires action from adviser today rather than further down the line.

These reporting options will be replaced by a new time limited disclosure facility from 2016 to mid-2017. Crucially, this facility will be on less generous terms than existing facilities.

John Cassidy, tax investigation partner at audit, tax and advisory firm Crowe Clark Whitehill, says this really does emphasise that anyone with something to declare needs to do so quickly.

He points out the new disclosure facility is to be based on penalties of at least 30 per cent of the tax due, with no immunity from prosecution, whereas the current Liechtenstein Disclosure Facility provides for penalties as low as 10 per cent and a guarantee of no prosecution.

Of course, this comes in the wake of stinging criticism of the paucity of prosecutions for the tax evading wealthy, not least in the wake of the HSBC Swiss banking scandal.

Mr Cassidy says: “Those wishing to come forward now have less time to avail themselves of these more beneficial terms. Going forward, 92 countries have to date agreed to exchange information on bank accounts automatically every year.

“HM Revenue and Customs will receive a huge amount of data on offshore assets held by UK tax residents, such as details of bank accounts, investments and interests in overseas trusts.

“HMRC will therefore have plenty of data that was not previously accessible in order to investigate or challenge a person’s tax position in relation to those assets. To help with this, the government plans to invest £4m in data analytics resource to maximise the yield.”

Other changes

Those using deeds of variation, like Labour leader Ed Miliband did following the death of his father in 1994, should also be put on alert.

The government announced it is to review the ways in which inheritance tax is avoided through deeds of variation. A deed of variation is used to rearrange wills, and the most common rearrangements are disclaimers and written variations.

A report on use of deeds of variation is expected this autumn.

HMRC also stated it intends to develop further measures to name those who continue to use schemes that fail so advisers need to tell clients they now face a greater risk of being named and shamed like pop star Gary Barlow or comedian Jimmy Carr.

Legislation will also be introduced in the forthcoming Finance Bill that will widen the current scope of the Promoters of Tax Avoidance Schemes regime by bringing in promoters whose schemes regularly fail.

The government will also introduce legislation that will enable HMRC to issue conduct notices to a broader range of connected persons under the Promoters of Tax Avoidance Schemes (POTAS) regime.

Legislation will also be put in place to ensure the three-year time limit for issuing conduct notices to promoters who have failed to disclose avoidance schemes to HMRC applies from the date when a failure is established.

On corporation tax, the government will introduce anti-avoidance legislation that will be back dated to be effective from 18 March 2015.

These rules will prevent companies from obtaining a tax advantage by entering contrived arrangements to turn historic tax losses of restricted use into more versatile in-year deductions.