There has been seismic political change in recent years, both in the UK and internationally, but one thing that has remained constant is HMRC’s desire to increase the tax take from its investigation work.
The 2015-16 HMRC annual report sets out a number of interesting statements. The department:
- collected and secured £26.6bn from its compliance activities;
- prevented £5.5bn from being lost to the UK through tax avoidance and evasion through enforcement activity and legal action;
- generated compliance yield of more than £415m from the UK’s 6,000 wealthiest individuals, through its High Net Worth Unit, which has more than 400 specialists;
- prosecuted 880 individuals securing a collective total of 638 years in prison sentences;
- employed the largest number of staff, approximately 26,800 or 45 per cent, on enforcement and compliance activities;
- uses specialist teams to identify individuals with hidden assets in the UK or offshore, with the ‘affluent’ teams delivering around £500m;
- continues to prevent offshore non-compliance and encourages voluntary disclosure by working with other countries multilaterally in the context of international agreements such as the OECD’s Common Reporting Standard (CRS).
The final bullet is particularly interesting as the first exchange under the inter-governmental agreements (IGA) in relation to the Crown Dependencies and Overseas Territories was due by 30 September 2016. An increasing list of countries will be exchanging information automatically under CRS from September 2017.
The Autumn Statement 2015 brought all HMRC disclosure facilities in existence at that time to a premature end with effect from 31 December 2015, with the suggestion of a new (less favourable) facility to replace them in the run up to the IGA/CRS exchanges.
That new facility arrived on 5 September 2016 with the announcement of the Worldwide Disclosure Facility (WDF). HMRC likes disclosure facilities for various reasons. However, the political change mentioned above, the continued public perception that disclosure facilities are just another way the wealthy get away with not paying their full share of tax plus the automatic exchange of information under CRS mean this facility is different. None of the ‘benefits’ or ‘incentives’ of previous facilities are included.
Instead the HMRC mantra to those with an incorrect UK tax position involving offshore sources of income or gains is disclose or ‘correct’ your tax position before we find you.
This approach has been reinforced by the issue of a consultation document on 24 August 2016 in relation to ‘a requirement to correct’ (RTC).
Although at consultation stage, the clear intention is for an RTC to be introduced in Finance Act 2017 to provide a window, from 6 April 2017 to 30 September 2018, for taxpayers to correct their UK tax affairs in respect of their offshore interests, before they are subjected to new stringent ‘failure to correct’ (FTC) penalties (potentially up to 300 per cent) and ‘naming and shaming’.
HMRC states ‘People with overseas assets are often those with the most complex tax affairs and this can include tax structures which were compliant when they were set up but are not now’. It goes on to say ‘we are looking for the RTC to address all non-compliance irrespective of the underlying behaviour or motivation’.
HMRC is looking for taxpayers to review their offshore affairs and if appropriate correct that position through a disclosure. Failing to review their affairs or to correct a known failing will place that individual in a FTC position.
This does not mean there is nowhere to go for those that need to bring their tax position up to date. However, all the signals indicate that non-compliance, whether deliberate or not, needs to be addressed and the days of ‘burying one’s head in the sand’ have long gone.
The ‘incentive’ to disclose is no longer to come forward and pay a reduced settlement but, on the back of CRS, to come forward before HMRC finds you and charges stringent penalties. This is a message that certainly should not be ignored by taxpayers or their advisers.
For more information, please get in touch with Andrew Walker.