Evading and avoiding tax through the use of offshore structures and arrangements is the source of much tax loss, according to HM Revenue & Customs. No surprise then that the current Government (and the coalition before it) has been relentless in its crackdown on it, with a special focus on offshore evasion and avoidance.
The Government says it remains determined to reduce incentives and increase penalties for those who do not pay the tax they should, and there will be few in the country that will argue with the sentiment.
Since 2010, the Government has invested more than £1bn into HMRC to strengthen its powers in tackling avoidance, including championing ground-breaking new international standards on transparency and exchange of information. Some of this activity has even made the news, particularly when someone rich and famous has been involved.
The Government’s attempt to change the economics of tax avoidance has included the introduction of the general anti-abuse rule (to give statutory effect to the purposive/principle-based interpretation) and significant reform of the international tax rules.
Considerable publicity has also been given to the countering of aggressive tax planning by multinational companies that divert profits from the UK, with the new diverted profits tax at 25 per cent, in force since April.
HMRC says that, as a result of the actions taken, it will have secured £100bn in additional compliance revenue. This includes more than £31bn from big businesses and £1.2bn extra from the UK’s 6,000 richest people, who each have a net worth of £20m or more. Not a bad return on investment, so to speak.
But the fun does not stop there. Here is some more of the action recently undertaken:
- Targeting those who persistently enter into tax avoidance schemes
- Asking the regulatory bodies to maximise their role in setting and enforcing clear professional standards around the facilitation and promotion of avoidance
- On evasion, the Government rightly states it has played a leading role in the transformation of international tax transparency It has established agreements to exchange information on financial accounts automatically with over 90 countries. Under these agreements, HMRC will receive information annually on UK tax residents’ offshore accounts.
- For those who continue to evade tax, a tough new package of measures (including new criminal offences and greater financial penalties) is being introduced.
- For offshore evaders, the much-discussed new strict liability criminal offence is to be introduced. This will mean it will no longer be possible to evade large sums of tax and plead ignorance in an attempt to avoid criminal prosecution. Financial penalties, including a new penalty linked to the underlying asset, are also being increased.
- There is to be a new offence of corporate failure to prevent tax evasion or the facilitation of it. This will complement the existing criminal offences for individuals. The Government will also introduce new civil penalties, exposing those who enable evasion to the same level of financial penalty as the tax evaded by the evaders themselves.
For both evaders and enablers of evasion, the Government says it will extend the scope for HMRC to publish their names, exposing them to public scrutiny. It is arguable that naming and shaming has done at least as much as (and potentially more than) legislation and litigation to change the public perception of what is and is not acceptable in relation to tax avoidance.
Tony Wickenden in joint managing director at Technical Connection