Changes that come into force from September are further reminders that tax cannot be ignored by merely placing assets overseas
I have written extensively in this publication over the past few years about the Treasury’s and HM Revenue & Customs’ attitude to tax avoidance. A powerful combination of success in tribunal and court cases, targeted anti-avoidance rules, naming and shaming, disclosure of tax avoidance schemes provisions, accelerated payment notices and the general anti-abuse rule have had a serious impact on the market for aggressive tax avoidance schemes.
And HMRC’s anti-avoidance armoury has been strengthened further over the past 12 months with two more important developments:
- In September, the Common Reporting Standard began to operate. This involves an annual automatic exchange of information on offshore financial accounts to the tax authorities of the residence country of account holders. The initial CRS exchange covered 49 jurisdictions but the number will expand to over 100 by September this year.
- In November, the “requirement to correct” provisions contained in the Finance (No. 2) Act 2017 became law. This is targeted at taxpayers (including trustees) with offshore assets. Under RTC, any such person with a potentially undeclared income tax, capital gains tax and/or inheritance tax liability must correct their tax position by 30 September (when the CRS comes fully on stream). After that deadline, failure to correct will attract punitive fines, such as a tax-geared penalty of up to 200 per cent of the avoided tax plus a possible 10 per cent asset-based penalty.
These two measures are further reminders that tax cannot be ignored by merely placing assets overseas. If clients have any doubts about the tax position of assets held overseas, they need to act before the RTC deadline, which is less than six months away.
At the same time, however, it is important to remind clients this does not mean there is something intrinsically wrong with holding offshore investments. Offshore bonds and offshore funds (reporting and non-reporting) have very clear tax provisions attributed to them in the UK tax code and can be held with impunity by UK resident and domiciled taxpayers – provided the reporting and declaration requirements of UK tax legislation are complied with.
The same is even true for offshore bank accounts. Nothing wrong with them; just declare any income that they may generate.
The Spring Statement was accompanied by several papers focusing on the area of tax evasion and avoidance, including:
- An update to last year’s consultation paper on corporate tax and the digital economy. Predictably, this was mainly concerned with taxing the usual Silicon Valley suspects.
- A consultation on the “split payment” of VAT. This would aim to counter online VAT fraud by making the ‘merchant acquirer’ (for example, eBay) or some other intermediate body (for example, a payment services provider) responsible for deducting VAT from gross transaction payments and remitting the amount directly to HMRC. The main target is offshore businesses selling into the UK.
- A consultation on the role of online platforms in ensuring their users comply with their tax obligations. This is targeted at traders who sell online but do not register with the tax authorities.
Elsewhere in tax…
Let’s move away from tax avoidance now and take a look at business taxation. The main rate of corporation tax is currently 19 per cent. It is destined to decline to 17 per cent from April 2020.
For those running their own business, the low corporation tax rate (compared with the higher and additional rates of income tax) can make trading through a company an appealing option.
However, the decision was complicated in 2016/17 by new tax rules for dividends, which changed again in 2018/19 with the reduction in the dividend allowance to £2,000. Further out, there is a risk of government action to limit the financial benefits of incorporation, with the Chancellor having promised last November to issue a consultation paper on private sector off-payroll working.
Somewhat surprisingly, this document did not appear as part of the Spring Statement. The best choice for any business depends on all the facts and it is important to take more than just today’s tax rules into account when deciding on the appropriate trading vehicle.
The Spring Statement did include the Government’s response to an earlier consultation on changes to business property revaluation in England.
The plan to move from five- to three-yearly revaluations has been confirmed, with the first revaluation taking place in 2021, a year earlier than previously proposed. As ever, even the smallest tax changes generate legitimate and mutually beneficial reasons too contact clients.
Tony Wickenden is joint managing director of Technical Connection. You can find him Tweeting @tecconn