In March 2013, HMRC published a policy paper on offshore tax evasion, entitled ‘No safe havens’. The world today looks very different to 2013 and HMRC has published its updated policy accordingly, imaginatively rebranded as ‘No Safe Havens 2019’.
Change in emphasis
The most striking difference between the two policy papers relates to their objectives.
- The first objective in the 2019 paper is ‘to maximise revenues and bear down on avoidance and evasion’.
- By contrast, the original paper concentrated on evasion , and made only passing reference to maximising revenues.
The increased focus on what HMRC calls avoidance (broadly, reducing tax liabilities by applying an interpretation of the law Parliament did not intend, often using artificial or contrived arrangements) alongside evasion (acting illegally) reflects changes in public attitudes and is reasonable. However, the new focus on maximising revenues is potentially dangerous and may encourage the sort of sharp practice by some HMRC officers that it is trying to stamp out from taxpayers if this objective is not appropriately defined. If HMRC is required simply to maximise revenues, there is a real risk that its officers will be encouraged to ignore errors in HMRC’s favour, or pursue arguments they know to be wrong, in the hope that this will not be spotted. This may be good for tax advisers dealing with disputes, but it puts the integrity of the UK tax system as a whole at risk.
Achievements to date
More positively, the policy paper points out many areas where the UK has played a leading role, including encouraging the exchange of information between countries, and creating international standards challenging tax avoidance arrangements such as shifting profits between high and low tax jurisdictions. These actions benefit us all, making it easier to identify and collect taxes due.
We are already seeing practical results from these moves. In 2018, HMRC received 5.67 million records relating to offshore assets of UK residents. This has resulted in HMRC writing to thousands of taxpayers to check that tax returns have been prepared correctly.
It is likely that most people who receive a letter have done nothing wrong, and that when HMRC receives their replies no further action will be taken. Where there has been a mistake, it is right that it should be corrected and HMRC’s letter gives the taxpayer the chance to do this with the minimum of fuss. However, those who respond to HMRC’s letter incorrectly could be open to criminal prosecution, so it is important to take advice and reply with care. Correcting errors when prompted by HMRC can also lead to heavy penalties, and again it is important to take advice before acting.
No Safe Havens 2019 provides a snapshot of the way attitudes have changed in recent years, both within HMRC and in society as a whole. For the most part, it shows government doing a good job in promoting fairness and efficiency in the tax system, but it includes some worrying developments, that need to be monitored carefully.
For more information please get in touch with Andrew Robins.