With HMRC closing the net on irregularities, it is time for UK taxpayers to resolve outstanding liabilities. DLA Piper's Simon Airey and Jayne Newton explain the adviser's role.
The unprecedented increase in momentum for governments worldwide to create greater tax transparency is a hot topic for advisers and clients alike. For those seeking to evade tax, the world is rapidly shrinking.
However, there are several opportunities for errant taxpayers to regularise their affairs in order to minimise the impact of these developments.
There are two key elements to HM Revenue & Customs’ (HMRC) strategy to clamp down on offshore tax evasion:
Time to get clients’ tax affairs in order
• Increasing the opportunities for overseas territories to enter into Tax Information Exchange Agreements to facilitate the detection of those evading tax.
• Providing voluntary disclosure facilities (VDFs) for UK taxpayers to regularise their tax affairs in advance of the proposed information exchange.
To bolster these initiatives, HMRC has significantly increased the resources at its disposal in terms of both systems and investigations capability.
The data at the disposal of HMRC is now vast and its net is closing all the time. In addition to the formal information gateways that exist between many countries, HMRC gathers information from informants, whistleblowers, data thefts and ongoing investigations and disclosures that identify third parties and other suspect transactions.
It is also processing huge amounts of data received in response to compulsory disclosure notices that were issued to more than 300 UK financial institutions in August 2009.
If UK taxpayers do not resolve their outstanding tax liabilities before they come to HMRC’s attention, they will face formal investigation, severe penalties and potential criminal proceedings.
VDFs in each of the Crown Dependency (CD) territories (Jersey, Guernsey and the Isle of Man) are available from 6 April 2013 until 30 September 2016. In addition, the Liechtenstein Disclosure Facility (LDF) remains available until 5 April 2016.
All of these facilities allow the regularisation of UK tax liabilities relating to undeclared assets, income and gains anywhere in the world and offer highly beneficial terms.
Key features include the fact no tax at all is payable in relation to periods prior to 1999 and penalties are considerably mitigated. However, it should be noted the terms of the LDF differ from those of the CDs’ (CDDF) in several significant respects. It is, therefore, important to take advice as to which will be more beneficial according to a client’s particular circumstances.
Advisers need to support their clients, because:
• Regularising the tax position in relation to previously undeclared assets may give rise to greater opportunities for movement and investment of funds to facilitate more profitable strategies.
• The extremely generous terms of the disclosure facilities will help to preserve a greater proportion of the funds under management (compared to the situation where an investigation would almost certainly result in considerably more tax to pay going back up to 20 years, plus penalties of up to 200%).
• An assessment may be needed to decide which investments to liquidate or transfer in order to meet any tax liabilities arising (although it should be noted that it is not mandatory for the undeclared assets to be used for this purpose - payment can be made from any source).
In considering whether to raise these issues with a client, certain advisers will be conscious of their professional obligations to make a Suspicious Activity Report, under the provisions of the Proceeds of Crime Act 2002, in relation to any suspicion or knowledge of tax evasion on the part of their client.
It should also be noted that communications with “relevant professional advisers” who are not lawyers (for example, accountants) will not be privileged from disclosure and are, therefore, capable of being accessed by HMRC if a statutory notice is served upon them or their client before a disclosure is made.
As a result, if concerns exist in relation to the information that needs to be shared prior to a decision being made about making a disclosure or certain investment decisions, advice should be sought from a tax investigations expert either at, or in conjunction with, a law firm.
The LDF provides guarantees of protection from criminal prosecution as long as a full, accurate and unprompted disclosure is made and the source of the funds is not from ‘criminal activity’ (not including the tax evasion itself).
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