The Game Is Over, Warns HMRC


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The hard line stance against tax evasion by tax authorities across Europe shows no sign of abating. Indeed it is only likely to increase. The UK seems to be leading the way and just a couple of

The hard line stance against tax evasion by tax authorities across Europe shows no sign of abating. Indeed it is only likely to increase. The UK seems to be leading the way and just a couple of months into 2011 various new initiatives to help its efforts have already been announced.

Writing in Accountancy Age on 22nd February, David Gauke, Exchequer Secretary to the Treasury, issued a warning:

?Over the next four years we will invest ?900 million in HM Revenue & Customs (HMRC) to tackle criminal behaviour, evasion and fraud. From this year HMRC will have an additional 200 criminal investigators in place. They will have new tools to link and organise data from numerous sources ? reducing the amount of time it takes to identify and target non-compliant customers and rule-breakers. And they will be resourced and empowered to pursue more prosecutions.?

?The public expects nothing less,? he said, ?particularly at a time when we are making so many tough choices elsewhere?. He is keen to see the authorities and agents working together, ?to ensure people understand that the world has changed for those who break the rules on tax and the consequences that will now follow for those who do so?.

HMRC?s aim is to deliver an additional ?7 billion of revenue for the government by 2014/15 and increase criminal prosecutions for tax evasion fivefold.

By catching tax cheats the Revenue benefits twice: first by recovering the unpaid tax plus penalties and then by bringing the taxpayers back into the system.

Investigations into offshore bank accounts

Taxman first gained access to offshore bank accounts in 2007 and since then HMRC has been analysing huge amounts of information obtained from over 300 banks and its Specialist Investigations Office has opened serious tax fraud enquiries.

In January the news that two British citizens had been arrested on suspicion of using Swiss bank accounts to evade tax signalled the start of a new phase in HMRC?s crackdown on tax havens. More arrests are likely to follow.

New offshore related penalties

At the beginning of February HMRC announced new penalties for offshore non-compliance, starting on 6th April. As per the current penalties they can be charged for failing to notify; inaccuracy on a return and failure to file a return on time. They apply to income and capital gains tax.

Gauke warned: ?The game is up for those going offshore to evade tax.?

There are now three levels of penalties, linked to the amount of tax transparency offered by the territory where the income or gain arises.

Category 1 covers jurisdictions which automatically exchange information with the UK and in this the penalty remains up to 100% of the unpaid tax, the same as existing legislation. Countries like France, Spain, Portugal, Cyprus, Malta, the US, Australia etc fall into this category. Guernsey and the Isle of Man also make the list.

Category 2 covers jurisdictions which only share information on request. This includes Jersey, Gibraltar, Switzerland and Singapore amongst others. The penalty is up to 150% of the unpaid tax.

Category 3 is for jurisdictions which do not share information and this case the penalties can be up to 200% of the due tax. Andorra, Monaco, Panama, United Arab Emirates and around 50 other countries fall into this category.

Deliberate defaulters

Later in February HMRC launched a new Managing Deliberate Defaulters (MDD) programme, whereby tax cheats will be subject to continued and close personal scrutiny for up to five years.

Where HMRC indentifies deliberate errors it will first ?correct their behaviour? by collecting unpaid tax and imposing penalties, and then place defaulters on the MDD programme to closely monitor their tax affairs to ensure they continue to comply with their obligations. This can include inspection visits, pre-return checks and requests for additional documentation.

This adds to rules introduced a year previously whereby any individual or company who has evaded tax of over ?25,000 can be ?named and shamed? on the HMRC website.

?Amnesty? for plumbers

Following on from the Tax Health Plan (THP) for medical professionals, HMRC?s latest measure, announced at the beginning of March, is aimed at plumbing and heating professionals.

Called the Plumbers Tax Safe Plan (PTSP), it is not an amnesty as such but rather offers terms towards the lenient end of HMRC?s range. The penalty and number of years to be investigated depend on whether failure to disclose revenue was due to genuine error, or carelessness, or was deliberate but not concealed, or if the extent of undeclared tax was deliberately concealed. For most it will be between 10% and 20%.

HMRC has obtained information from Gas Safe and Corgi and after the PTSP has closed on 31st August it will carry out targeted investigations on those who did not come forward. This could result in substantial penalties or even criminal prosecution.

The Revenue has indicated that this is the start of a series of campaigns aimed at professions more inclined to tax evasion, but also warned that people should not wait to disclose as there may not be a scheme aimed at their profession.

While this is called a plumbers? plan, the Chartered Institute of Taxation (CIOT) said the offer to come clean on undeclared tax is open to all. People working in other sectors can expect ?broadly the same treatment? if they come forward about their own tax affairs.

Whichever country you live in, it is your responsibility to establish what your tax liabilities are on all your income and gains and then submit an accurate tax return and pay your tax on time each year. When it comes to your savings, investments and pensions it is often possible to use legitimate arrangements to lower your tax bill, but you need to ensure the methods you use are fully compliant with local tax law. An advisory firm like Blevins Franks will guide you through your options and give you peace of mind that you are not paying more tax than necessary.

By Bill Blevins, Managing Director, Blevins Franks

17th March 2011

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.