Since December 31, 2015, individuals who wanted to make a disclosure of tax irregularities to HMRC have had few places to turn. With the closure of all the previous routes, including the Liechtenstein Disclosure facility, HMRC had failed to deliver its new facility which it had promised would be available from April 2016.
December 9, 2016 17:22
Finally, in September, after several delays, HMRC announced details of two new processes which will allow people to bring their UK tax affairs up to date. The worldwide disclosure facility will cater for anyone who still has accounts or assets held overseas, while the digital disclosure service will be a route for resolving UK based issues.
These facilities are not particularly advantageous compared to previous programmes, in that they offer no reduced penalties, no immunity from prosecution, a short disclosure deadline and no reduction in years that need to be taxed.
However, the advantage is that this is still a structured route for individuals to make declarations of unpaid tax without a full HMRC inquiry. In most cases this will be without meeting an inspector or facing much challenge to the information presented. HMRC’s warning is that if people still do not disclose, they will be punished with much higher penalties and potential prosecution.
But after 10 years of providing numerous facilities and routes to disclose unpaid tax, you may wonder why HMRC is offering yet another route and whom they expect to catch this time around.
The main reason provided by HMRC is that it is giving final notification that, within the next 24 months, the new exchanges of financial information with other countries will provide it with so much additional intelligence that it will inevitably find out about any undeclared assets or unpaid tax. Therefore, HMRC is saying: “Declare your liabilities now before we find out about you”.
However, underneath its headline of coming into new information, HMRC is also well aware that, despite all the promises of crackdowns and amnesties, it has not yet tempted many tax defaulters to come forward and although it knows the problems exist, it does not have the manpower to go out and find them.
While it has certainly been successful in reducing the number of people who hold undeclared offshore bank accounts, there are many more areas which urgently need tackling.
In May 2016, John Davies, of Esher, Surrey and his son, Benjamin, were jailed for fraudulently claiming £5 million in gift-aid repayments by posing as charity trustees and making claims using false names or names of dead people. Because charities do not usually have to pay tax and are therefore further off HMRC’s radar than other organisations, they can be used illegally to make false claims of donations or to spend charity money on uncharitable purposes. This usually results in tax evasion, in addition to the misuse of charity funds.
Among Britain’s highest earners, HMRC has targeted celebrities and sportsman who were advised to invest their considerable earnings into film partnership schemes which HMRC believes do not work. Many of these celebrities were not financially sophisticated and relied on professionals for advice. In the meantime they have spent their earnings and are now facing huge tax bills that they cannot afford. HMRC is still actively pursuing other schemes where it believes it is owed substantial amounts of tax.
At the other end of the scale, HMRC is aware it has not yet won the battle over cash businesses. There are still many traders in the UK who are not declaring the correct profits, by asking customers for cash, which they pocket without paying tax. Many of these people are also avoiding VAT and may be claiming benefits, all of which results in too little money ending up with the government.
The new reality is that the government is showing its commitment to reducing the opportunities to allow tax to leak out of the system. Slowly it is using all available resources to tackle non-compliance. HMRC is allowing one further opportunity to tidy up historic tax issues before it decides to come knocking at your door. Do not let it pass.
Geoffrey Hollander is head of tax investigations at Cameron Baum Chartered Accountants, 0207 724 8824, geoffrey@cameronbaum.co.uk