UK Revenue Taking Ruthless Approach To Tax Evasion


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With the UK government applying unpopular spending cuts left, right and centre to rein in the deficit, it is essential that it also does everything it can to raise revenue in other ways. Taxation

With the UK government applying unpopular spending cuts left, right and centre to rein in the deficit, it is essential that it also does everything it can to raise revenue in other ways. Taxation is the key source of revenue, but while the government has implemented some tax rises and may have to announce more in the future, it cannot rely on these alone. Its crackdown on tax evasion and efforts to collect previously unpaid tax are crucial and will intensify.

A HM Treasury Press release on 20th September confirmed that it is making new funding available for ?

??A more robust criminal deterrent against tax evasion ? HMRC will increase the number of criminal prosecutions fivefold

?A crackdown on offshore evasion with the creation of a new dedicated team of investigators to catch those hiding money offshore?

This new unit has a large database on potential offshore tax evaders to work with, built up over the recent years by various HM Revenue & Customs (HMRC) initiatives.

In 2007, prior to its first tax ?amnesty?, the Offshore Disclosure Facility, it had forced the five main high street banks to disclose confidential information on their clients? offshore accounts.

Last year HMRC served notices to 308 UK and foreign banks to disclose all information on offshore accounts. This included UK institutions with offshore branches plus foreign banks with UK customers, including several institutions with operations in Switzerland. Financial institutions have been handing over information on both individuals and companies going back six years.

This was followed by the New Disclosure Opportunity and the Liechtenstein Disclosure Facility both of which allowed tax evaders to come clean with reduced penalties. The latter has more favourable conditions and runs until March 2015.

HMRC could also obtain information from other countries on British taxpayers who may not be declaring their offshore assets. Tax authorities around the world are now cooperating with each other and sharing information through Tax Information Exchange Agreements and Double Tax Agreements. This includes offshore financial centres which used to be considered as ?tax havens?.

Countries like the UK, Germany and the US have also shown that they are willing to pay for information ? and to share it with each other.

In 2006/07 an employee of HSBC Geneva stole confidential data on account holders, which he later passed on to the French tax authorities. It is believed that France passed on names of suspected tax evaders to other European countries, including the UK and Spain.

In June 2010 the Spanish government said it had received details of around 3,000 Swiss bank accounts owned by Spanish taxpayers and had started to investigate them.

Then at the end of September HMRC announced that it is investigating over 200 ?extremely wealthy? taxpayers suspected of failing to declaring their HSBC Switzerland banks deposits. The tax evasion is understood to amount to ?many millions of pounds?.

The tax department has taken the ? so far exceptional ? step of sending them Code of Practice 9 (COP9) letters. These came into force in 2005 and are used for the most serious form of tax inquiry but have rarely been used? until now.

COP9s require the taxpayer to attend a meeting with HMRC, giving them one last chance to make a full disclosure and so avoid prosecution for tax fraud ? though it is not completely ruled out. The aim of the investigation is for HMRC to uncover the full facts, determine the tax liabilities due and collect them along with interest and penalties. The onus is on the taxpayer to prove that they have now come completely clean. They will need to supply an exhaustive amount of supporting evidence to prove they have nothing else to hide.

An HMRC spokesman said: “This is part of our drive against tax evasion. The days of hiding money offshore to evade tax are now over.

Anyone receiving a COP9 loses the right to come forward voluntarily ? they cannot even use the Liechtenstein Disclosure Facility with its more favourable terms.

As the UK authorities continue to intensify their efforts against offshore tax evasion, and as the new unit searches through the existing database and any new information coming in, it is expected that HMRC will be sending out more and more COP9s in future.

Other recent changes to help HMRC?s efforts include the imposition of more stringent penalties where undisclosed funds are held in jurisdictions which do not exchange information with the UK; the power to publicly name and shame defaulters and increased inspection powers. UK tax inspectors now have police-like powers and can turn up at homes and businesses unannounced to examine their records if they suspect they have underpaid tax.

Taxpayers who have hidden money away offshore and believe the tax authorities will never find them are being proved wrong.

The UK?s hard stance against tax evasion is a reflection of what is happening throughout much of the developed world. It is often still possible to lower your tax liabilities but you should only use arrangements which are fully compliant with the regulations in your country of residence. For reassurance contact a tax and wealth management firm like Blevins Franks for a review of your tax obligations and advice on legitimate tax planning arrangements.

By Bill Blevins, Managing Director, Blevins Franks

21st October 2010

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.