HMRC Win Rangers EBT Case at Supreme Court

The Supreme Court have today (5 July 2017) found in favour of HMRC with regard to the long-running Employee Benefit Trust ("EBT") case. 

This is the final nail in the coffin that puts beyond doubt that from a PAYE perspective, the use of EBT's by company's was ineffective and that contributions into an EBT should have been subject to deduction of income tax under the PAYE regulations at the time they were made.

Many EBT investigations had been effectively put on hold pending the outcome of the Rangers case, but HMRC are now likely to revisit these with the wind well and truly in their sails. We are likely to see a whole slew of Follower Notices over the next few months in the light of this.

If believe you may be affected by this ruling please do talk to us, as we are expert in resolving EBT disputes with HMRC.

 

Government Attack on “Enablers” of Tax Avoidance – A Commentary for Professional Practices

Now that the dust has settled on the draft legislation at Schedule 20 of the Finance Bill 2017, entitled “Penalties for Enablers of Defeated Tax Avoidance” we thought it would be interesting to take a look at the detail of the draft legislation and how it is likely to affect professional practices

The legislation will take effect when the Finance Bill receives Royal Assent, most likely in Summer 2017.

Background to the Draft Legislation

The attack on what the government has labelled “Enablers of Tax Avoidance” is part of their ongoing war against those involved in the promotion and marketing of what has been referred to as “Abusive” tax arrangements. As well as going after the users of tax avoidance arrangements the government has the creators of these arrangements in their sights and is looking to hit them where it hurts – in the pocket – and to make the marketplace as toxic as possible.

Professionals Fears and a Word of Reassurance

One unfortunate collateral result of this new legislation though is to make accountants and lawyers extremely nervous as to whether the general tax planning advice they offer is likely to be caught by the new legislation. This has been compounded by the cautious guidance on professional standards being issued by the main governing bodies.

It is our opinion that this is unlikely to be the case, and HMRC themselves have gone on record as saying that advisers engaged in legitimate tax planning have “nothing to fear”. However, given the uncertainty we felt that a review of the draft legislation may offer some clarity for our readers.

A Detailed Look at the Draft Legislation

The draft legislation states at the outset that there will be a liability to a penalty where a person has entered into abusive tax arrangements and incurs a defeat in respect of those arrangements. When this happens, a penalty is payable by each person (our emphasis) who enable the arrangements.

The legislation then goes on to define the terms used.

Firstly, what is a “tax arrangement”? For the purposes of the legislation a tax arrangement is one where, having regard to all the circumstances, it would be “reasonable to conclude” that the obtaining of a tax advantage was the main purpose or one of the main purposes of the arrangement.

The legislation also requires the tax arrangement to be “abusive”. They are regarded as being abusive if the arrangements cannot reasonably be regarded as a course of action in relation to the relevant tax provisions, having regard to all the circumstances. Essentially, it seems that there is almost a “common sense” test, or as we call it a “giggle” test. If you look at the arrangements and it makes you giggle, then it is likely to be abusive!

Subsections 2(3) to 2(7) of the draft legislation go into much greater detail than what is “abusive” than our giggle test, but don’t in our eyes add much more clarity than our giggle test does. They talk about arrangements involving contrived or abnormal tests, whether the tax result of an arrangement is significantly different to the economic result and that the GAAR Advisory Panel can provide opinion in this area.

Having defined the terms “tax arrangements” and “abusive” the draft legislation then looks at what is meant by “defeat”. Defeat, for these purposes, is effectively when any adjustments, assessments etc can no longer be varied on appeal or otherwise.

For multi-user schemes HMRC cannot proceed with a penalty until they have defeated more than 50% of the related arrangements.

The draft legislation then moves on to considering who “enablers” are. Broadly, the term enabler includes designers of the arrangements, managers of the arrangements, marketers of the arrangements, enabling participants in the arrangements and financial enablers in relation to the arrangements. This can bring within the scope of the legislation the accountants devising the arrangements, the marketers, the lawyers (including Counsel) providing opinion and legal advice, banks, lenders or other financial intermediaries, company formation agents etc. Also, and crucially, it is our opinion that care needs to be taken by accountants who may in the past have made their client lists available to scheme promoters in return for commission payments for successful introductions, as if the implementation of tax arrangements that are later defeated result from such introductions then those commission payments are likely to be vulnerable under the terms of the draft legislation.

The next point covered is the quantum of the penalty. Broadly, for each person who enable the arrangements the penalty payable is the total value of all the relevant consideration received. HMRC collect the penalty by raising an assessment, and the penalty is payable within 30 days of date of issue of the penalty, subject to the customary appeal and review rights. HMRC have two years from the date of “defeat” referred to above to actually issue the assessment.

The legislation includes the power to publish details of persons found to be liable to penalties under certain circumstances.

Finally, and crucially, the draft legislation includes a provision that the legislation only applies in respect of arrangements entered into on or after the day on which the Act is passed, and that any action of any person carried out before the day on which the Act is passed is to be regarded.

Our View

It is clear that the “Enablers” legislation is aimed at the devisors and promoters of particular tax avoidance schemes. It is unlikely that high street accountants, lawyers of Financial Advisors are going to be caught up in the main, unless they do offer up their clients to promoters in return for a commission when tax avoidance arrangements are likely to be on the menu.

Care needs to be taken, and it is well worth keeping an eye on developments, as this issue is likely to continue to cause a great deal of disquiet. The big unknown is quite how HMRC will play this, given the often blurry line between tax planning and tax avoidance.

Please feel free to contact us if you have any concerns.

Taxpayers Behaving Badly? Making the Case for Anonymity Before a Tax Tribunal

 

In a fascinating case, a Tax Tribunal Judge has considered claims by the well-known actor Martin Clunes that his tax appeal in respect of his claims for the tax deductibility of cosmetic surgery should be heard in private to spare Mr Clunes’ blushes. The case reference is http://financeandtax.decisions.tribunals.gov.uk//judgmentfiles/j9665/TC05692.pdf and a full transcript can be found by following the link.

Broadly, Mr Clunes was seeking anonymity in an upcoming Tax Tribunal hearing on the basis that otherwise, to quote the Tribunal Judge, “he might become the target of mockery and jokes and, more importantly, his public perception, or what might be described as his celebrity persona, will be damaged”.

The Judge refused Mr Clunes application, commenting that whilst anybody having a case heard before a Tax Tribunal may prefer anonymity to prevent their friends and neighbours from hearing about their financial affairs, “….the public interest in the outcome of tax litigation, whether in the High Court or in this tribunal, outweighs the desire of the taxpayer for anonymity, and the inevitable resultant intrusion into matters which might otherwise remain confidential is the price which must be paid for open justice, however unpalatable the individual taxpayer might find it to be”.

It would therefore seem that at least in terms of tax matters, celebrities and us mere mortals are bound by the same rules!

The related appeal by Mr Clunes in respect of HMRC’s assertion that the costs of cosmetic surgery incurred by Mr Clunes were not an allowable deduction will be heard at a later date, and will be in of itself an interesting hearing. Watch this space for more details.

Tackling Offshore Tax Evasion: A Requirement to Notify HMRC of Offshore Structures

Our Principal - Stephen Outhwaite - was recently interviewed by Alex Heshmaty (www.legalwords.co.uk) for an article published by Lexis Nexis on Government consultation on tackling offshore tax evasion. We have reproduced that article, with the kind permission of Lexis Nexis, below.

This article was first published on Lexis®PSL Tax on 24 January 2017. Click for a free trial of Lexis®PSL.

Tackling Offshore Tax Evasion: A Requirement to Notify HMRC of Offshore Structures

The Government has long been waging a war against offshore tax evasion, and as part of its ongoing strategy HM Revenue & Customs (“HMRC”) released a Consultation Document on 5 December 2016 seeking views on a proposed new legal requirement that intermediaries creating or promoting certain complex offshore financial arrangements notify HMRC of their creation.

We take a look here at the Consultation in some detail, by answering some questions relating to it.

Q. What is the background to this consultation?

A.         Historically, when tackling tax avoidance and tax evasion, HMRC focussed its firepower on the individuals and entities engaged in avoidance or evasion. Whilst it enjoyed limited success in doing this, it became apparent to the Government and to HMRC that where avoidance and evasion was facilitated by promotors – or “enablers” – a more efficient approach was to target those enablers and then attack their client base, rather than tackling singleton targets.

This led to the approach we have seen under the Disclosure of Tax Avoidance Schemes (“DOTAS”) and Promotors of Tax Avoidance Schemes (“POTAS”) legislation, which has made it much simpler for HMRC to become aware of the end users of schemes that fulfil the notification criteria, and in turn made it much easier and more cost effective to target those end users.

This latest Consultation looks to build upon this approach of targeting the “enablers” of activity the government is looking to tackle, by proposing the enactment of legislation aimed at intermediaries creating or promoting certain complex offshore financial arrangements requiring the intermediaries to notify HMRC of their creation.

Q.   What does the Consultation propose?

 

A.            The Consultation proposes a requirement for intermediaries who create certain complex offshore arrangements to notify HMRC of the details of such arrangements and to provide HMRC with a list of clients using those arrangements. This would enable HMRC to review the workings of those arrangements to see if they are technically competent (and to challenge them if not!) and to be aware of identity of the end-users of the arrangements.

The consultation document proposes that intermediaries be provided with a “notification number” that would in turn be provided to the clients who were the end users of the arrangement in question, who would in turn be expected to include this notification number on their tax returns or personal tax account.

Failure to comply would result in civil sanctions (presumably financial penalties).

It is worth noting that the current consultation is upon the broad principles of a requirement to notify HMRC of offshore structures and does not go into the minutiae of any intended legislation.

Q.   Who will have to notify the offshore arrangements?

 

A.            The consultation states that the requirement to notify would rest with the person or business who created the specific offshore arrangements for UK taxpayers that exhibit “certain characteristics”, and refers to that person or business as a “creator”.

Clients of the creator using the arrangements would also be required to notify HMRC on their tax returns or through their personal tax accounts.

The consultation envisages that the proposed new legislation would apply to creators both inside and outside of the UK, stating that to exclude offshore creators would significantly reduce the impact of the proposal, but the consultation seeks views as to whether offshore creators should be within the scope of the proposed legislation.

Q.        Is HMRC expected to take a “hallmarks” based approach to any requirement to notify?

A.         The current consultation, looking at broad principles, does not drill down into any detail on the specific characteristics by which an arrangement would be made subject to notification (known as “hallmarks”), and at this stage no hallmarks have been devised. It does seem clear that hallmarks are likely to feature in any final legislation. The consultation states that “…hallmarks would be used to maximise the policy’s ability to meet its objectives.

The consultation also states that “…the hallmarks will be carefully targeted in order to avoid imposing an unreasonable compliance burden on intermediaries and taxpayers”.

So, whilst it seems likely that there would be a hallmark based approach to any requirement to notify, the consultation does seek views on what those hallmarks should be, whether there is any concern regarding the use of hallmarks and whether there are any alternative approaches that could be considered.

Q.        Does the proposal fill a perceived gap, as HMRC argues?

A.         Notwithstanding recent developments on a global scale aimed at increasing transparency of the beneficial ownership of assets and investments – such as the Common Reporting Standard (“CRS”) and the increasing number of exchange of information agreements between jurisdictions – the Government still believes that more can be done.

The perceived gap that this consultation targets, according to the government, is that it can be difficult to understand highly complex offshore arrangements, especially where beneficial ownership is being deliberately hidden, making it difficult for financial institutions (and regulatory bodies such as HMRC) to establish the identity of the beneficial owner.

The government believes that individuals seeking to hide money or assets offshore are helped by businesses who create complex financial arrangements (the “creators” referred to above).

Whilst it seems likely that if the hallmarks can be set correctly, the requirement to notify may capture UK based creators, on the basis that enforcement action for non-compliance with the proposed legislation is effective, what is less clear is the effectiveness of the proposed legislation on non-UK based creators. Quite what effective enforcement action (if any) can HMRC take? HMRC would then be forced back into targeting end-users of arrangements created by non-UK based creators as it has always done. As long as there is an appetite for offshore tax evasion by individuals there will always be a marketplace to satisfy that market. The proposed new legislation may well make life more difficult for UK-based creators, but it could push such activity offshore.

The consultation proposes that as well as imposing civil sanctions upon and naming creators of such arrangements who fail to comply with the requirement to notify, the end user of an arrangement where the creator has failed to notify has the requirement passed on to them.

The proposed legislation would need to be underpinned by vigorous enforcement action aimed at end-users, using the civil and criminal sanctions available to HMRC targeted at offshore tax evasion. Only by such vigorous enforcement will the proposed new legislation be likely to achieve the aims of the government.

Q.        What could be the impact on offshore jurisdictions of such a requirement?

A.         At this stage, it is difficult to assess the impact of the proposed legislation on offshore jurisdictions. What we do know is that many jurisdictions have signed up to the CRS and are actively seeking to improve transparency of ownership. They are therefore likely to be supportive of the government’s efforts in this direction. However, there are other jurisdictions with a more laissez-faire attitude to transparency and tax compliance. Whether the proposed legislation, along with CRS reporting, forces a migration of creators to some of these less rigorous jurisdictions remains to be seen.

Q.        What could be the impact on advisers in this area?

A.         With DOTAS and POTAS, initially it seemed to be “business as usual” for the promotors of tax avoidance schemes. It has only been after several years of HMRC success at litigating against tax avoidance schemes, allied with controversial legislation such as Accelerated Payment Notices that there seems to be a loss of appetite from end users of schemes, and a contraction of the marketplace of the enablers of those schemes.

This, coupled with proposed new legislation targeting “enablers of tax avoidance”, has caused widespread concern amongst the traditional accountancy sector, with the main accountancy bodies advising their members to be wary regarding tax planning advice and the wording of the Professional Conduct in Relation to Taxation being tightened up in this respect. It is likely that practices governed by the main UK accountancy bodies will by and large look to minimise exposure in this area.

Creators of complex offshore arrangements are more likely to be found in the boutique tax advisory businesses both in the UK and overseas, and it is likely that the proposed new legislation will make life going forward more challenging for them.

Q.        What type of structures are expected to be targeted by this proposal?

A.         The proposed new legislation is aimed at arrangements marketed or supplied to individuals, but the consultation poses the question should the scope be extended to cover corporates.

The type of entity involved in the offshore arrangement is not specified in this consultation, and may well be covered in subsequent consultation on the detail, but it seems likely that nothing will be ruled out and we can expect to see the scope including corporates, trusts, partnerships, foundations and the like. It is likely that the legislation would be widely drafted.

Q.        Do you recommend that stakeholders contribute to the consultation?

A.         Absolutely, yes. If stakeholders have any opinions at all it is worth contributing to the consultation. Recent history shows that the government does consider all representations.

The closing date for comments is 27 February 2017.

The full consultation document can be found at https://www.gov.uk/government/consultations/tackling-offshore-tax-evasion-a-requirement-to-notify-hmrc-of-offshore-structures

 

The Governments Continuing War on Tax Avoidance - an Update

The dust has now settled on the 2017 edition of January 31st – the day when many taxpayers, plus their beleaguered accountants, breathe a collective sigh of relief as the law-abiding will have filed their online returns by today’s deadline.

This year though, it’s a little different, thanks to new and pending legislation announced by the 2016 budget relating to tax avoidance which has sent “shivers” across the accountancy and financial services industry.

Here at Outhwaite Associates we look to keep up to speed on this ongoing battle, and as far as it is possible we can offer some reassurance and clarity relating to the new arrangements. 

Most advisors and taxpayers will be aware of so called tax avoidance schemes which the government believe have allowed global companies, the wealthy and celebrities to seemingly escape paying their “fair share of tax.”

These have collectively run into hundreds of millions of pounds and caused consternation amongst those modest tax payers who pay up religiously, year after year. As recently as last week the Public Accounts Committee criticised HMRC for failing to clamp down on the tax affairs of the ultra-wealthy.

“The Government has announced changes that are aimed to stamp out so-called tax avoidance and ensure that everybody pays their fair share.

It’s been stated before (by the late Denis Healey, former Chancellor of the Exchequer no less) that the difference between tax avoidance and tax evasion can be the width of a prison cell wall.  These new measures aim to introduce clarity and to establish the difference between legitimate tax planning and schemes that are patently designed to evade tax.”

Subject to continuing consultation, the crackdown includes:

- Tackling tax avoidance schemes which can be based on transactions with no commercial purpose, manufactured paperwork, attendance at non-existent meetings and other “creative” means.

- Strengthening tax avoidance sanctions and imposing a financial penalty on “enablers” of tax avoidance schemes including accountants, financial planners and lawyers.

- Removing the defence against penalties of “reasonable care” for those who rely upon advice provided by the enablers of tax avoidance schemes

- Introducing a new legal requirement to correct a past failure to pay UK tax on offshore interests within a deadline.

- Launching extensive industry-wide consultation; details will be published in draft legislation shortly.

These changes have made a lot of people in the profession very jittery but I don’t think anybody who’s running their affairs within current law has too much to worry about. Nevertheless, there is also much nervousness from accountants who are worried about where the line between tax planning and tax avoidance will be drawn

We at Outhwaite Associates would like to see HMRC focusing on tackling the indefensible tax avoidance using manufactured transactions and paperwork and the promoters of such arrangements; they need to pursue these vigilantly by way of measured and balanced investigation underpinned by appropriate legislation rather than what I am seeing from HMRC currently, which is a wholesale pursuit of soft targets for relatively small sums.

When it comes to small businesses and sole traders who are often viewed as these soft targets by tax inspectors, w would urge a proportionate approach to those who are genuinely trying to do the right thing.

And our advice to people considering tax avoidance schemes is that if it appears to be too good to be true, then it probably is! 

Stick to the law, avoid anything that appears artificial or contrived and rely on your accountants’ advice.  In many areas we still await clarity, so always opt for professional advice.

And the best advice for my professional colleagues? Keep an eye on the consultation arrangements, stay engaged and try to have your say.  It’s in all our interests to come up with robust arrangements that are transparent and enforceable.”

 

The Chancellor’s Autumn Statement – A Tax Dispute Specialists’ Perspective

Chancellor, Philip Hammond

Chancellor, Philip Hammond

Well, we’ve had Philip Hammond’s first Autumn Statement, and now the dust has settled what do we at Outhwaite Associates make of it all?

Well, we’ll leave aside the well-publicised commentary around growth, infrastructure and the mainstream headlines, and just focus on what really interests us as tax dispute specialists – the tucked away news about tax avoidance and HMRC.

To be honest, there weren’t too many surprises, rather a reinforcement of what we already know.

On tax avoidance, as we already knew the 2016 budget announced changes to tackle use of disguised remuneration schemes by employers and employees, following the theme of recent years. The Chancellor announced in the Autumn Statement that the government will now extend the scope of those changes to tackle the use of disguised remuneration avoidance schemes by the self-employed to try to ensure that self-employed users of these schemes pay what the Chancellor referred to as “their fair share of tax and National Insurance”.

The Chancellor also announced that the government will take steps to make it less attractive for employers to use disguised remuneration avoidance schemes (as if it wasn’t a harsh enough environment for this already!) by denying tax relief for an employer’s contributions to disguised remuneration schemes unless tax and National Insurance Contributions are paid within a specified period.

On strengthening tax avoidance sanctions and deterrents, and as signalled at Budget 2016, the Chancellor is looking to provide a strong deterrent to those enabling tax avoidance.  A new penalty will be introduced for any person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC. This new regime will reflect an extensive consultation and input from stakeholders and details will be published in draft legislation shortly. We await this with great interest!

We have recently recorded a Webinar on this very subject for an accountancy training organisation and know from conversations with accountants and lawyers that there is much nervousness in the profession about this, and particularly where the line between tax avoidance and tax planning will be drawn. Indeed, there has now been guidance issued from the main accountancy bodies to members regarding this and it is likely to be a hot topic for a while.

The government will also remove the defence of having relied on non-independent advice as taking ‘reasonable care’ when considering penalties for any person or business that uses such arrangements.

On counter avoidance, the government is investing further in HMRC to increase its activity on countering tax avoidance and taking cases forward for litigation, which is expected to bring forward over £450 million in additional duties by 2021-22.

Turning next to offshore tax evasion, the government will introduce a new legal requirement to correct a past failure to pay UK tax on offshore interests within a defined period of time, with new sanctions for those who fail to do so. In advance of this there is a disclosure opportunity to allow those with offshore tax issues to “come clean” to HMRC in return for light touch treatment. This is called the “Worldwide Disclosure Facility” and is in operation now for a limited time. Please do contact us if you have any concerns or require any support regarding this.

The government will consult on a new legal requirement for intermediaries arranging complex structures for clients holding money offshore to notify HMRC of the structures and the related client lists. This will be tied in with reports being made under the newly introduced Common Reporting Standard.

The government perceive money service businesses to offer significant tax risks and will legislate to extend HMRC’s data-gathering powers to money service businesses in order to identify those operating in the hidden economy.

Further on tackling the hidden economy, and following consultation, the government will consider the case for making access to licenses or services for businesses conditional on them being registered for tax. It will also develop proposals to strengthen sanctions for those who repeatedly and deliberately participate in the hidden economy. There will be more on this in Budget 2017.

So, there you have it. For us, the most interesting area is the whole debate around enablers of tax avoidance. We can expect there to be a great deal of activity in this area, and a great deal of nervousness in the profession.

As ever, if you have any questions or concerns please do contact us on either stephen@outhwaite-associates.uk or by telephone on 07949 929663.

HMRC Announces Latest "Research & Development Tax Credit" Annual Statistics

HMRC has just released its annual report looking at the statistics behind Research & Development ("R&D") tax credit claims by businesses, and the numbers make fascinating reading.

For the uninitiated, R&D tax credits are a tax relief introduced some years ago by the Government some years ago, designed to encourage greater R&D spending, leading in turn to greater investment in innovation. They work by reducing a company's tax bill by an amount equal to a percentage of the company’s allowable R&D expenditure. A company can only claim R&D tax credits if it is liable for Corporation Tax.

HMRC report that between 2000-01, when the R&D tax credit schemes were launched, and 2014-15, over 141,000 claims have been made and almost £14.0 billion in tax relief claimed. This is a huge amount of money.

The total amount of R&D support claimed rose to £2.45bn in 2014-15 – an increase of £675m (38%) from the previous year.

R&D claims and the amount claimed continue to be concentrated among companies with a registered office in London, the South East or the East of England (47% of all claims and 63% of the total amount claimed). This is interesting in the light of recent talk about a "Northern Powerhouse". Perhaps awareness of the scheme needs promoting more in the North?

The ‘Manufacturing’, ‘Professional, Scientific and Technical’, and ‘Information and Communication’ sectors continued to have the greatest volume of claims, making up a total of 75% of claims and 77% of the total amount claimed for 2014-15.

We at Outhwaite Associates have helped a number of businesses to submit successful R&D claims. Interestingly, a number of those businesses were unaware that their activities qualified for a successful claim until they spoke with us. If your business is involved in any innovative activity, or is developing innovating processes then please do contact us for a no-obligation discussion to see if there is any merit in formulating a claim.
 

Brexit from EU - Some Thoughts Regarding VAT

Well, as things stand in September 2016 we do not yet know when our exit from the EU will actually happen and neither does the Government. It may be late 2019, which seems to be the current opinion but until negotiations are concluded we do not know what the actual effects will be to the UK’s VAT system.

It may mean less paperwork, such as not having to submit EC Sales Lists and Intrastat declarations on a monthly basis but it could lead to more physical checks and controls on goods coming into and leaving the UK as far as the other EU Member States are concerned. Goods heading for the rest of the EU will once more almost certainly have to be treated like exports elsewhere.

Customs duties may have to be re-imposed on certain goods entering the UK and the same could apply in the rest of the EU when goods are sent there from the UK. Import VAT on goods entering the UK could also be re-introduced taking us back to the pre-2003 position when the Single Market was formally introduced.

But there could be other more complicated changes required. The MOSS system, for example, only recently introduced throughout the EU for many services rendered to private individuals in a different country than the provider may have to be amended for UK businesses. Some suppliers may be required to register for the first time in another or multiple EU Member States.

All will no doubt become clear in due course and, until Brexit actually happens, UK businesses will have to comply with existing VAT legislation both here in the UK and in the rest of the EU. After that, the UK should have more flexibility when it comes to changing the VAT rules, which are currently supposed to mirror those imposed by the EU.

So, it may be a while before we can actually start planning but businesses do need to be aware that some VAT changes will come about as a result of the UK’s leaving the EU.

Outhwaite Associates are here to help and provide guidance as and when necessary and do feel free to give us a call now, without prejudice!

Better Late than Never! HMRC Announce New Disclosure Facility

Having prematurely closed all its pre-existing facilities to disclose tax irregularities on 31 December 2015, we have been waiting for news of the facility to replace them that was first announced by the then Chancellor last year. Finally, we have news to report.

We have been a supporter of previous HMRC disclosure facilities as they offered individuals and businesses with tax irregularities a chance to make their peace with HMRC, in return for certainty and a “softer landing” than could otherwise be expected. The lack of a facility has been bad news for both HMRC and individuals and businesses.

HMRC have now announced (with little notice) a new disclosure facility tied in with the introduction of worldwide reporting of assets and investments by financial institutions under the newly implemented Common Reporting Standard (“CRS”) as well as a proposed new set of rules to introduce new legislation requiring any person who has undeclared UK tax liabilities in respect of offshore interests to correct that situation by disclosing the relevant information to HMRC. This will be ahead of the widespread adoption of the CRS in 2018. 

HMRC are proposing that the disclosure would include the outstanding tax, interest and penalties due for offences committed on or before 5 April 2017. The disclosure can be made through the Worldwide Disclosure Facility (“WDF”) and via the new online Digital Disclosure Service, both of which go live on Monday 5 September 2016.

Under the terms of the CRS (and other financial exchange of information agreements in place) HMRC is collating information about overseas accounts, insurance products and other investments, including those held through overseas structures such as companies and trusts. This will include details of who the beneficial owner of such assets and investments is. HMRC will be matching this information with what has been declared, and will be acting to investigate cases of under-declaration, both using civil means, and criminal investigatory means where it feels this is appropriate.

So how will the Worldwide Disclosure Facility (“WDF”) work?

The WDF will launch on 5 September 2016 and will be available to anyone who is disclosing a UK tax liability that relates wholly or in part to an offshore issue. This includes: -

  • income arising from a source outside the UK
  • assets situated or held outside the UK
  • activities carried on wholly or mainly outside the UK
  • where the funds connected to unpaid tax are transferred outside the UK

Anyone who wishes to disclose a UK tax liability that relates wholly or in part to an offshore issue is eligible to use the facility under the terms.

The individual or business concerned will be able to make a disclosure from 5 September 2016 via the online Digital Disclosure Service and will first need to notify its intention to disclose.

From 5 September, the individual or business only needs to tell HMRC that you will be making a disclosure. Once an intention to make a disclosure has been made, there is a 90-day period to: -

  • collate the information needed to complete the disclosure;
  • calculate the final liabilities including tax, duty, interest and penalties; and
  • complete the disclosure, using the unique disclosure reference number provided when notifying.

We would advocate seeking suitably qualified professional advice before making any disclosure, and at Outhwaite Associates we have a wealth of experience in managing disclosures to HMRC and securing excellent results for clients. We also support advisers acting for clients who may not have experience of managing disclosures to HMRC.


What if I have Tax Irregularities to Disclose, but they do not Relate to Offshore Issues?

We can still help you make a proactive disclosure to HMRC, resulting in the best possible outcome for you. Please contact us if you have any concerns.