In mid-October, The Treasury reported that the tax gap for 2013-14 was 6.4%, which continued a long-term downward trend. The tax gap, is the difference between the amount of tax due and the amount collected, which has fallen from 8.4% in 2005-06, to the 6.4% reported last month. David Gauke, Financial Secretary to the Treasury, said:
“The UK has one of the lowest tax gaps in the world, and this Government is determined to continue fighting evasion and avoidance wherever it occurs.”
Edward Troup, HMRC’s Second Permanent Secretary and Tax Assurance Commissioner, said:
“We are committed to reducing the tax gap further and bringing in more money to fund vital public services. We are continuously looking for new ways to improve compliance and tackle non-compliance, whether by helping individuals do the right thing or by cracking down on offshore tax evasion by the wealthy or tax avoidance by multinationals.”
In his Summer Budget, the Chancellor announced a range of new measures including £800 million of investment over the parliament, to strengthen HMRC’s ability to tackle evasion, reduce avoidance and improve voluntary compliance, including using data to identify and tackle tax risks more effectively.
More recently, The Public Accounts Committee has said HMRC’s customer service performance is “unacceptable” and its failures were harming its ability to collect taxes, noting that there have been only 11 prosecutions in relation to offshore tax evasion in the last five years. Although the PAC did acknowledge that HMRC had improved its ratio of revenue collected per £1 of administrative expenditure from £138.14 in 2010-11 to £166.95 in 2014-15, it said the “number of criminal prosecutions for offshore tax evasion is still woefully inadequate.”
Our view with the tax gap falling, together with other results recently announced by HMRC, shows that they are effective and will become more effective, as the strength and development of their Connect IT system improves. Other HMRC results announced in October:
HMRC taskforces have brought in £109 million in the last six months (April to October 2015), HMRC launched 27 new taskforces targeting sectors that are at the highest risk of tax fraud, including Income Tax Self Assessment (ITSA) Repayments, Retail, Hidden Wealth and Grocery sectors, with one taskforce alone generating 22 arrests.
The Let Property Campaign, which HMRC launched in September 2013 with a voluntary disclosure opportunity, has brought in more than £50 million in previously undisclosed tax on rental profits. For those landlords who have not disclosed, HMRC are “sat on” information obtained via their Connect System, will be contacted and if successfully shown not to have disclosed rental profits will be penalised.
This shows where resources are being targeted and further laws are being introduced which will give HMRC more powers. One such new measure is the introduction of a strict liability offence for those evading UK tax by not declaring overseas income and gains. This will apply to all overseas jurisdictions, not just “shady” low tax jurisdictions – think of your bank account used to operate a holiday home in Italy! Currently, an individual can only be charged if it can been shown that they have deliberately concealed the income or gain. Under the new rules, the failure to declare the income or gain is sufficient and there is no need to prove that it was deliberate. The maximum penalty for the offence would be a prison sentence of up to six months.
For those individuals who have undeclared offshore income or gains, then the route to disclose is to use the Liechtenstein Disclosure Facility (“LDF”), which offers limited penalties of 10% on underpaid tax and reduction of liability from 20 years to six with no criminal charges. The LDF was originally going to be open until April 2016, however it is now scheduled to be closed on 31 December 2015. It will be replaced with a “last chance” disclosure facility, the full details are yet to be released but it will have tougher penalties and no immunity from criminal investigation compared to the LDF.
In addition, from 2017 HMRC will have more information gathering powers when 90 countries begin exchanging details re bank accounts, trusts and offshore companies under a new system of information exchange arrangements. This information will be added to the Connect System and then checked against information already held on taxpayers to see if there are any discrepancies.
For example, owners of overseas holiday homes who rent occasionally and have not declared the income (holding it in an overseas bank account on which interest is paid) on the basis that it will not be discovered need to rethink their position. The world is getting smaller and everyone is sharing information.
Although HMRC have stated the new criminal offence would only be applied to cases of significant wrong doing, they added that time is running out for those with offshore income or assets to get their affairs in order. Pressure from MPs, such as the statements made by the PAC may enhance the pressure on HMRC to apply the new strict liability offence when it becomes law.
So, with the UK government’s clear policy on tackling tax avoidance and evasion combined with unilateral agreements across the world, it is now more important than ever for businesses and individuals with interests in multiple jurisdictions to consider their exposure to risk.
Should you wish to discuss or review your position, please do not hesitate to contact us to discuss.
Harbour Key Limited 5 November 2015
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