HMRC seeks severe fines for tax evaders
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Savers and investors who have kept assets offshore should make use of disclosure facilities to settle with the UK tax authorities while they still can, industry experts have warned.
They say that as the authorities gather more data on offshore holdings, life for tax avoiders could become very tough from 2016 onwards – especially if parliament grants some of the powers that HM Revenue & Customs has requested.
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In proposals published last month, HM Revenue & Customs suggested the introduction of “a new penal surcharge” in cases where assets have been moved between jurisdictions to evade tax.
It also suggests extending the time limit for assessment of cases where it believes assets have been deliberately shifted to avoid tax. HMRC can currently look into returns up to 20 years ago for income tax and capital gains tax.
This 20-year deadline, in place since 1970, would be replaced by a fixed limit, such as 1999-2000 – an example given in the proposal – the earliest year for which tax is due under the terms of the current offshore disclosure facilities. HMRC would be able to continue to assess cases of deliberate non-compliance as far back as this indefinitely.
Ronnie Ludwig, a partner at chartered accountant Saffery Champness, said that the tax authority has difficulties tracking assets held in offshore trusts that can hop from one jurisdiction to another. “For HMRC it is often an exercise in frustration.”
The removal of the 20-year limit would, however, represent more of a symbolic than a practical step, said Ray McCann, a partner at Pinsent Masons. “It is intended to ramp up the pressure on people [to come forward].”
The proposed surcharge on offenders – HMRC’s preferred option to improve compliance – could take the form of a fixed percentage of the value of tax liabilities for each year they remain unpaid.
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In its consultation document, the tax authority stated that this sanction would represent “a marked increase in the downside for taking steps to continue evading tax” and act as “a significant deterrent”.
The deterrence factor of interest accruing on late tax payments has diminished in the recent era of low interest rates, said Mr McCann. “When rates were higher, tax evasion over 10 years could easily amount to 100 per cent in interest.”
Dawn Register, tax director at BDO, agreed that the timing of these proposals is intended to encourage more people to disclose their offshore assets before the closure of the Liechtenstein Disclosure Facility, in April 2016.
The LDF is a tax amnesty allowing Britons with undeclared offshore assets to clean up their affairs with a 10 per cent fixed penalty on tax liabilities, plus interest. Last month, HMRC announced that users of offshore tax avoidance schemes could not take advantage of the LDF to settle their tax disputes.
As a result of an agreement with Swiss tax authorities, Ms Register said that HMRC will have a picture of the scale of assets moved out of Switzerland by UK taxpayers, as well as their top ten destinations. “The numbers must be significant enough for the Revenue to justify changing long-term tax laws.”
HMRC’s consultation will remain open for responses until the end of October. The government’s conclusions are expected to be revealed in this year’s Autumn Statement, scheduled for December 3.
