The tax man cometh
This article explains the UK Government’s approach to raising revenues by tackling tax avoidance and tax evasion.
The Chancellor of the Exchequer announced in his Autumn Statement (2012) that the Government will be investing a further £77 million which would allow UK HM Revenue and Customs (HMRC) to expand their anti-avoidance and evasion activity. The focus will predominantly be on offshore tax evasion and tax avoidance by wealthy individuals and multi-national companies.
The investment will fund:
• a centre of excellence within HMRC to bring together and enhance its expertise in tackling offshore tax evasion. This is aimed at building HMRC’s offshore capability by making better use of HMRC data to identify tax evaders and developing a more pro-active approach to international engagement in this area.
• a number of specialist personal tax inspectors to tackle offshore evasion and avoidance of inheritance tax using offshore trusts, bank accounts and other entities. A particular focus will be on the agents and tax intermediaries involved.
• the expansion of HMRC’s affluent unit. Particular focus of the affluent unit is upon wealthy individuals who own property and land abroad and where information on their tax returns suggests they would not be able to afford this.
Enhanced co-operation agreements
The UK Government has started to address the problem of tax evasion and tax avoidance by signing agreements with Switzerland and the United States of America.
The agreement with Switzerland allows the UK to recover previously unpaid tax on Swiss bank accounts.
The agreement with the US will mean legislation will be introduced to bring into effect the UK-US agreement to improve international tax compliance and to implement FATCA (US provisions commonly known as the Foreign Account Tax Compliance Act). This agreement will improve tax transparency between the two countries and means that the US and UK will automatically exchange a significantly increased amount of information on potentially taxable income.
A response to the previously issued consultation, draft regulations and guidance were published on 18 December 2012 and can be found on the HMRC website.
The issue of tax evasion and tax avoidance is high on the agenda for most governments. The UK Government intends to establish similar agreements with other jurisdictions and it is likely that FATCA style agreements between most jurisdictions will be in place within the next 12 months.
However you have one last chance to come clean.
HMRC have for a limited timeframe extended the LDF.
So what’s the LDF? This is a scheme that allows a UK taxpayer, who has not disclosed all of their income and gains from funds held offshore, to come clean and pay some tax with limited penalties.
What are the advantages? Firstly the amount you would pay in tax and penalties will be significantly less using the LDF than any other amnesty or if you get caught. You also have an assurance of avoiding any prospect of being criminally prosecuted by coming clean yourself in the LDF.
Who is eligible to use this facility? This particular amnesty is only relevant for UK taxpayers who held an offshore account with undisclosed tax liabilities where the offshore account was opened before 2009. All clear so far – so what sort of questions do we get asked?
A typical first question is, “This all sounds very good, however, can I really trust the UK Revenue & Customs not to persecute me if I come clean?” Well in this case yes. The terms of the agreement are set out very clearly and if you are eligible for the LDF and make a full and complete disclosure you are in the clear. You will not face criminal prosecution, although you will face a penalty of 10 percent of the tax due plus any interest.
However, the biggest advantage for those who are eligible is avoiding the normal twenty-year period for which they have to calculate the back taxes due – in the case of the LDF it’s just ten years. In many cases this significantly reduces the tax that would otherwise be due. Additionally, the LDF offers a “flat rate” option where you don’t wish to carry out the specific tax calculations.
“So what’s the catch?” is usually the next question. The catch is that you will be paying tax on the interest and gains in all future tax years. And is that so bad? – well not really for the peace of mind that comes with not waiting for that knock at the door or the dreaded brown envelope with notification of a criminal investigation.
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