Tax inspectors take more tax out of the rich – HM Revenue & Customs set up its High Net Worth Unit in 2009 specifically to investigate the tax affairs of the UK?s wealthiest
Tax inspectors take more tax out of the rich
HM Revenue & Customs set up its High Net Worth Unit in 2009 specifically to investigate the tax affairs of the UK?s wealthiest citizens. So far it is proving a great success for the Treasury.
The High Net Worth Unit replaced the Complex Personal Tax Team which used to bring in ?25 million annually. In its first year the new unit managed to net ?86 million. According to reports it has now almost doubled this achievement, generating ?162 million extra revenue for the 2010-11 tax year. This is on top of the tax already paid by the individuals concerned.
Treasury minister, David Gauke, commented: ?These are economically challenging times and it is absolutely essential and only fair that everyone pays their share of tax.?
The Treasury acknowledges that high net worth individuals tend to have complicated tax affairs, but says this complexity should not prevent accuracy, and that the ?very rich? must ?pay the tax the law says they should?. The Unit works with representatives of the individuals to ensure tax rules are applied correctly. The extra tax becomes due when rules have been misunderstood or incorrectly applied to the taxpayer?s particular circumstances. If the Unit finds evidence of tax evasion the matter is referred to another HMRC unit.
This is an example of why it is important to get your tax planning right from the outset so that you do not end up with an unexpected tax bill.
Some taxpayers could also find themselves paying more tax when the agreement between the UK and Switzerland is finalised and launched.
According to all reports, under the agreement Swiss banks and financial institutions will start to deduct a withholding tax from interest earnings, dividends and capital gains earned by British taxpayers. The tax collected will be forwarded to the Swiss tax authority which will then remit it anonymously to HMRC in the UK.
The Treasury expects to earn ?3 billion in extra income over the next four years from the agreement.
While the withholding tax was initially expected to be between 25% and 35%, the Financial Times has since reported that, according to a source familiar with the investigations, it will actually be 50%. The actual amount still needs to be officially announced, however.
Also as part of the deal, investors will also pay a one-off levy in recognition of past unpaid tax.
The announcement on the final deal is expected soon.
The talks between the UK and Switzerland were held against a backdrop of changing tax transparency standards. The conclusion is anticipated to set a new precedent in tax information exchange and for the Swiss banking industry.
The UK is not the only country negotiating with Switzerland. Germany has already started discussions on a similar agreement and France and Italy are expected to initiate similar talks in the near future. A similar deal with the US has also been suggested, with Switzerland?s Finance Minister saying that a withholding tax would be the ?right instrument? to resolve remaining tax issues with the US.
Liechtenstein disclosure facility
The pending announcement on the Switzerland deal may be affecting the Liechtenstein Disclosure Facility. The LDF was launched in October 2009 to encourage British taxpayers who have money hidden offshore to come clean on their assets.
The LDF offers a very good deal to errant taxpayers, since the penalty is fixed at 10%; the tax liability restricted to 10 years and they receive immunity from prosecution.
Originally expected to bring in ?1 billion for the Treasury by its conclusion in 2013, earlier this year the projected sum was revised up to ?3 billion. As at the end of March, however, the figure collected only stood at ?140 million. Tax experts say this could be because people are now waiting to see exactly what sort of deal will be announced with Switzerland.
However they warn that they do not expect the Swiss deal to be as useful as the LDF at helping taxpayers get their affairs in order.
HMRC?s latest initiative
HMRC has set up a new task force, with specialist teams to ?undertake intensive bursts of compliance activity in specific high risk trade sectors and locations across the UK?.
This initiative is part of the ?900 million allocated in the government?s October Spending Review to claw back around ?7 billion lost to tax evasion annually by 2014/15.
The restaurant trade is the first to be targeted. The first task force will be deployed in London, but will later cover the North West and Scotland. There will be another nine task forces over the next year, followed by more in 2012/13.
Commenting on the scheme, Mike Eland, Director General Enforcement and Compliance, said: ?The message is clear ? if you deliberately seek to evade tax HMRC can and will track you down, and you?ll face not only a heavy fine, but possibly a criminal prosecution as well.?
Over the past year HMRC?s increased targeting of tax evasion and avoidance has brought the Exchequer an additional ?8.5 billion of tax revenue, nearly 50% more than the total for the previous three years. It is aiming to undertake 1,000 criminal prosecutions a year.
New penalty regime
The start of the tax year in April introduced a new penalty regime for people found to have evaded tax. The amount depends on which jurisdiction the undisclosed assets were held in.
?For tax evasion within the UK and countries which automatically exchange information with the UK – up to 100% of the tax owed.
?For countries which exchange information on request ? up to 150%.
?Other countries ? up to 200%.
Commenting on the changes, David Gauke, Exchequer Secretary to the Treasury, said: “The time is running out for anyone going offshore to evade tax. Get your tax affairs in order, or face the risk of a penalty worth up to 200% of the tax evaded.”
Wherever you live, be it the UK or Spain or France or Portugal or Cyprus or Malta or elsewhere, it is important to make sure you get your tax planning right so that you do not have to face the consequences later. For advice on legitimate tax planning in your country of residence and/or the UK, speak to an experienced international tax adviser like Blevins Franks.
By Bill Blevins, Managing Director, Blevins Franks
19th May 2011