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Categories:Offshore,Regulation

No hiding place

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HMRC has returned to the issue of off-shore tax evasion, four years after it first took action on the issue. Last month’s deal between the UK and Switzerland, which will subject UK taxpayers with Swiss bank accounts to hefty fines if they do not make full disclosure, may mark the start of a renewed crackdown.

LSG Solicitors head of tax and tax dispute resolution Frank Strachan says: “This deal shows a significant development in HMRC’s clampdown on offshore tax evasion. This is basically part of HMRC demonstrating that the opportunity to hold on to non-disclosed assets is becoming more difficult.”

Others, such as Kleinwort Benson private client tax specialist Graeme Stenson, say the deal is an extension of existing work. He says: “It is just a follow-through of earlier announcements.”

These came against a backdrop of increased pressure to tackle tax evasion, which saw a £900m cash injection from the Treasury last year.

The Swiss deal incorporates aspects of HMRC’s previous offers such as imposing a withholding tax on assets (47 per cent for investment income and 27 per cent for capital gains), it also enforces a one-off tax charge of between 19 and 34 per cent for assets that remain in Switzerland after the amnesty deadline of April 13, 2013.

It is predicted to bring £380m in unpaid tax to HMRC but there is doubt about just how strict the terms are.

Baker Tilly tax director Kevin Hall says: “The deal is a compromise. The Swiss had to retain anonymity to comply with their own laws. HMRC is simply looking at this practically, it had no direct way of forcing money from the banks. HMRC would like to name and shame evaders but it has shown it is prepared to look at things commercially because it also needs to recoup tax.”

Strachan agrees that striking the right balance between making a political statement in terms of waiving anonymity and making an economic statement in terms of recouping money is a predicament for HMRC. He says: “I would not call the deal soft, it just leaves people’s options open. The facts are that if taxpayers want to provide their names, the payment to HMRC is likely to be less.”

There is a great amount of political will from all governments to tackle evasion, given current budget deficits

Stenson says the reasons for HMRC’s crackdown are twofold: “Politically, to name and shame evaders, but economically to recoup tax.”

The £900m Treasury funding boost aims to bring in an extra £7bn a year by 2014 and increase criminal prosecutions for tax evasion fivefold.

Hall says: “Part of the £900m is to recruit criminal investigators to substantially increase convictions.”

So far, it seems to be achieving its goals as tax evasion convictions for this year are up by 38 per cent and 600 people are under civil investigation.

It is not just the UK Government that is getting tough on tax evasion, says Hall. He says: “There is a great amount of political will from all governments to tackle evasion, given current budget deficits.”

The international push has been under way since 2000, when 31 tax havens committed to implementing the Organisation for Economic Co-operation and Development’s standards. Since then, regulation has included the European savings directive, tax information exchange agreements and naming countries not up to OECD standards.

Strachan says: “Although these manoeuvres only work within certain boundaries, they are progressing well in terms of clamping down. The US and German authorities are taking similar steps to the UK.”

But Strachan does not think “carrot” measures such as the Liechtenstein disclosure facility should be discounted in the face of “sticks” such as the Swiss deal and increased convictions. He says: “The LDF continues to provide good returns for HMRC with minimal up-front costs, and is expected to generate well over £1bn by the time it closes in 2015.”

Strachan believes we are more likely to see offshore accountholders who want to regularise their assets taking the LDF option rather than paying the fines in the Swiss deal, or moving their assets to untouched havens such as Singapore: “I can see some people moving funds but my advice is that the LDF is the best solution for people looking to regularise their tax position.” Hall agrees, saying the LDF will be used by many looking to correct their affairs at a discounted penalty of 10 per cent and at a decreased liability period of 10 years.

Stenson believes there is a fourth option. He says: “Voluntary disclosure under the Swiss agreement could become popular. This will depend on circumstances, but it could be cheaper, given that if funds are moved before 2013, the protection against investigation by HMRC will be lost.

The Swiss deal will run alongside the LDF and as the positive publicity increases, I would expect to see more action from HMRC on this.”

Strachan does not think the outcome of HMRC’s clampdown will be cut and dried. “Some of the work HMRC has done, such as tax information exchange agreements and the investigations into HSBC Geneva customers were, in many cases, a complete waste of time. TIEAs might look like progress in the eyes of Whitehall but the details required make them almost worthless. However, it will be interesting to see how other jurisdictions respond to propositions of similar arrangements. HMRC has its foot firmly wedged in the door now.”

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