As part of the Autumn Budget, the Government announced that HMRC (HM Revenue & Customs) would publish a new offshore tax compliance strategy. The Government also reaffirmed its intentions of fighting offshore tax avoidance, tax evasion and general non-compliance.
The new strategy is designed to build on the strengths of the current one. According to the Government, initiatives have secured and protected more than £185 billion since 2010. They say that without its strategy, this amount of tax would not have been paid.
Ending offshore tax avoidance
The current tax strategy from HMRC was implemented in 2014, and is called ‘No Safe Havens’. Its core tenet was to ensure that there are no jurisdictions in which taxpayers can hide their assets and income from HMRC.
Since 2014, the strategy has overseen new legislation and disclosure facilities. These were devised to encourage people with unreported tax liabilities from offshore wealth to voluntarily come to the HMRC and sort their tax affairs. Some of the key terms of the Liechtenstein Disclosure Facility (LDF) included immunity from prosecution and a low penalty of 10% of the tax involved. These have been criticised by being far too generous, given that many using the facility were owning up to large amounts of tax fraud.
Recent changes include harsher measures
Due to the criticism, the Government has implemented harsher measures more recently. These include:
- Substantial penalties measured by the value of the offshore assets.
- Penalties based on the movement of offshore assets in a bid to avoid disclosure and detection.
- The Failure to Correct (FTC) and Requirement to Correct (RTC) regime mean those who fail to correct non-compliance of offshore tax at a rate of up to 200% of the tax involved would receive harsh penalties and their details being made public.
Voluntary disclosers are usually made using the Worldwide Disclosure Facility (WDF). Exemptions include cases that involve serious fraud, which should be made through the Contractual Disclosure Facility (CDF). Disclosures made through the WDF can’t receive criminal immunity or a reduced penalty.
The UK Government has been making these changes as part of the general background for global tax transparency. Driven by financial austerity and fuelled by public demands for wealthy individuals and large enterprises to stop avoiding paying tax.
Common Reporting Standard for global transparency
The Common Reporting Standard (CRS), also known as the Organisation for Economic Co-operation and Development’s international information exchange, has included more than 100 countries. They have been sharing sensitive tax information since September 2017 in a bid to improve global transparency.
HMRC is a signatory, and as such have been given formerly unprecedented access to financial data of UK residents who use offshore accounts and investments. However, there are questions as to whether HMRC has enough resources to make use of this massive amount of data.
Earlier in 2018, the Public Accounts Committee (Parliament’s spending watchdog) reported on the Panama papers leak. The data leak led to 66 criminal and civil investigations and is expected to yield HMRC more than £100 million in unpaid tax. Despite this result, the committee says that it is “far from confident” that HMRC has enough expertise and resources to make proper use of the data it has access to.
Government must do more
Criticisms have been levelled against HMRC for many years from Treasury and Parliamentary committees for not fully investigating tax fraud or being too late to benefit from it. There are measures in place aimed at both tax payers and their advisers. For example, a strict liability corporate criminal offense is in place for those failing to prevent tax fraud. Other initiatives penalise advisers who enable their clients to perpetrate fraud.
Some of these, such as the RTC and FTC, the strict liability criminal offence for tax avoidance, and the amount of information automatically provided to HMRC under the CRS, it seems an appropriate time for the Government to reassess the measures and work on improvements. Some clues are given as to the future of the Government’s offshore noncompliance strategy with HMRC’s consultation paper ‘Amending HMRC’s Civil Information Powers’.
James Turner, Managing Director of Turner Little Limited says: “It seems likely that the changes to the current offshore compliance strategy will be minimal. This is particularly likely given that many of the current measures are either very new, untested or don’t even come into effect until next year. The biggest changes are likely to include more emphasis laid on international co-operation, as HMRC makes use of the CRS and the UK’s already adopted co-operation directives.
“It’s reasonable to think that HMRC will make some difference to the ‘tax gap’ that relates to offshore avoidance. However, it clearly needs more funding and resources to properly make use of the vast amounts of information it now holds. This is something that can only come from the Government.”
About Turner Little
Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.