AAT Birmingham Branch Tax Administration/powers and penalties Latest trends in HMRC activity GAAR Update Steve Besford Director Tax Investigations and

AAT Birmingham BranchTax Administration/powers and penalties

Latest trends in HMRC activityGAAR Update

Steve BesfordDirector

Tax Investigations and Dispute resolutionRSM Tenon London

2© Copyright RSM Tenon

Topics

Information powers

Penalties

Tax Investigations update

– LDF

– Swiss Tax Agreement

GAAR update


Information Powers

Schedule 36 FA 2008 - HMRC’s Information & Inspection Powers

Information can be requested from the taxpayer or a third party.

Any information requested must be “reasonably required for the purpose of checking [a] tax position”

A tax position includes “past, present and future liabilities”

Covers 13 types of tax

Notices can be issued to third parties where the identity of the target taxpayer is unknown.


Third Party Notices

Can only be given with either the agreement of the taxpayer or approval from the Tribunal

The taxpayer must have been told

– why the documents are required and

– given reasonable opportunity to make representations

Unless the Tribunal is satisfied that doing so might prejudice the assessment or collection of tax


Appeals

An appeal can be made in writing, within 30 days, to HMRC stating the grounds.

An appeal can be made if it is a third party notice on the grounds that compliance would be unduly onerous

There is no right of appeal against requirement to produce statutory records

There is no right of appeal if the Tribunal has given approval


Safeguards

Documents must be in the person’s possession or power. Cannot call for

– Documents relating to the conduct of a pending appeal – Journalistic material– Personal records– Documents over 6 years old at the date of notice*– Documents over 4 years before deceased person’s death– Privileged information or belonging to Auditors or Tax Advisers papers

Where a return has been submitted, a notice may not be given unless– The return remains formally under enquiry

– A discovery has been made

– Or it is a type of tax not covered by returns, or relates to PAYE


Powers to inspect premises and other property

An officer…may enter business premises and inspect:

– the premises

– business assets on those premises

– business documents on those premises

Can inspect the premises of involved 3rd parties

The inspection must be “reasonably required for the purpose of checking that person’s tax position”

Business premises – means premises or any part of premises that an officer believes is used in connection with carrying on a business

Buildings used solely as dwellings are specifically excluded.


Timing of inspections

Can be announced or unannounced

At any reasonable time

by prior agreement with the occupier or

Occupier must have been given 7 days notice, not necessarily in writing, or if unannounced, be carried out by an authorised officer

Approvals can be sought from FTT without prior notice to the taxpayer


Restrictions and Defences

HMRC guidance confirms the person has a ‘right to refuse entry’ – so entry cannot be forced

Distinction between inspect and search

– Example:

“You are shown into a room in which the books, records and invoices you asked for have been placed on a table for your inspection. You are allowed to open the files and boxes of records that have been collected. You are allowed to walk around and look at the pictures on the wall. You are not allowed to open the filing cabinet in the corner just to see what is in it”


Penalties for non-compliance

Initial penalty for non-compliance is £300

Potential daily penalties of £60

Providing inaccurate information or documents up to £,3000

Tax related penalties – decided by the Upper Tribunal


Assessing Powers

HMRC can make assessments where– Income or chargeable gains which ought to have been assessed has not

been

– A previous assessment is or has become insufficient

– Any relief given is or has become excessive

Assessing time limits (Discovery Provisions)– Not more than 4 years after the end of the tax year

– For careless behaviour – 6 years

– For deliberate behaviour – 20 years

Loss is brought about by the person or another person acting on his behalf


Determinations

HMRC can make a determination of tax due if no return delivered

Made to the best of the officer’s knowledge and belief

Time limits– Within three years of the filing date

Can’t be appealed.

Can only be displaced by a self assessment within 12 months of the determination


Penalties

Two penalty regimes– Returns due to be filed on or after 1 April 2009 (for periods commencing on

or after that 1 April 2008)

– Returns due to be filed before 1 April 2009

Commonality– Understatement of liability

– False or inflated loss claim

– False or inflated repayment claim

Subtle difference– Previously ‘culpable tax’

– Now potential lost revenue (PLR)


New Regime

Penalty is behaviour based

– Reasonable care

– Careless

– Deliberate

– Deliberate & concealed

Set maximum and minimum penalties for each behavioural category

Categories relate to jurisdictions

Reductions achieved by

– Telling (30%)

– Helping (40%)

– Access to records (30%)

Separate but similar regimes for ‘inaccuracies’ and ‘ failure to notify’


Maximum and Minimum Penalties for Inaccuracies - Prompted Disclosure

Category Careless Deliberate Deliberate and Concealed

Minimum Maximum Minimum Maximum Minimum Maximum

1 15% 30% 35% 70% 50% 100%

2 22.5% 45% 52.5% 105% 75% 150%

3 30% 60% 70% 140% 100% 200%


Maximum and Minimum Penalties for In accuracies– Unprompted Disclosure

Category Careless Deliberate Deliberate and Concealed

Minimum Maximum Minimum Maximum Minimum Maximum

1 0% 30% 20% 70% 30% 100%

2 0% 45% 30% 105% 45% 150%

3 0% 60% 40% 140% 60% 200%


Application of Reduction

Applies to the difference between the maximum and minimum.

Example:– 80% discount achieved for a deliberate and concealed understatement

following a prompted disclosure in a category 1 jurisdiction: Penalty will be 80% x 50% = 40%.

– Maximum penalty is therefore 100% less 40% reduction = 60% penalty.

Cannot go below the minimum except in special circumstances, which does NOT include:– Ability to pay

– Loss from one person is compensated for by another person.

These cases go to a special policy unit,


Jurisdictions

Countries are now categorised according to how tax compliant they are considered to be.

Default is category 2 – includes Jersey, Switzerland, Liechtenstein, Gibraltar, Luxemburg, Israel

Category 1 - Most EU, IOM, Guernsey, Cayman Islands, Cyprus, USA (with some exceptions)

Category 3 - Monaco, Andorra, Panama, UAE


Old Regime

Based on culpable tax not PLR

All started at 100% of the liabilities, reduced by– Disclosure – up to 20% plus an extra 10 % if unprompted

– Co-operation – up to 40%

– Seriousness – up to 40%

In certain circumstances it was possible to get penalties down to nil.


Liechtenstein Disclosure Facility

Memorandum of Understanding signed on 1/8/09 supported by a Tax Exchange Information Agreement

5 year Tax Compliance Assistance programme/5 year Disclosure Programme for UK

Financial Intermediaries in Liechtenstein need to be satisfied that, where appropriate, clients are UK tax compliant

Started 1/9/2009 and final opportunity to disclose ends 05/04/2016

Account closure in Liechtenstein if no disclosure to UK tax authorities



Benefits and Advantages

10% penalty (20% from 2009)

40% Composite Rate Option (CRO) available but with loss of exemptions & allowances

Single Charge Rate (SCR) 50% 2010/11 (more limited than CRO)

No liability pre-6 April 1999



Benefits and Advantages (continued)

No liability pre-6 April 1999

Streamlined process, pre-prepared forms, web guidance, FAQs.

Scope for Innocent Error and with it shorter timescales

Assurances re. criminal prosecution


Who does it cover?

Individuals, companies, trusts, partnerships…any legal person and not just for those with existing assets in Liechtenstein

Qualification from 01/09/2009 if Liechtenstein investment existed at that date.

Qualification from 01/12/2009 if Liechtenstein investment acquired after 01/09/2009 subject to a Confirmation of Relevance (CoR) being issued

CoR is a statement issued by a Liechtenstein Financial Intermediary evidencing that the relevant person:

has a substantial portion of the assets affected by the disclosure invested or managed in Liechtenstein or

has personal contact with the financial intermediary, the client relationship is long-term and the services provided are not merely of secondary importance

With effect from 1 December 2011 HMRC will require sight of the Confirmation of Relevance before an LDF registration application can be accepted.


Who cannot participate?

MOU Preamble paragraph E)

a) Any person under (serious) investigation by HMRC.

b) Any person who was previously under investigation by HMRC and who knowingly did not disclose their interest in any relevant property can participate BUT will not be able to benefit from the limited penalty.

c) Any person contacted under the ODF or NDO can participate BUT will not benefit from the limited penalty

d) Any person who participates in the disclosure facility and has a bank account or financial account, outside the UK or Liechtenstein which was opened through a UK branch or agency will not be eligible for the shorter period, the fixed penalty and the Composite Rate Option


Timelines

Timing for action and disclosure

Registration by letter, fax, ‘phone or email accompanied by CoR

HMRC will issue registration certificate within 60 days

Certificate to be sent the financial intermediary within 30 days

Send the disclosure to HMRC within

7 months (if using composite rate)

10 months (if using normal rates)

HMRC will send disclosure certificate within 30 days

Timing for action and disclosure

Registration by letter, fax, ‘phone or email accompanied by CoR

HMRC will issue registration certificate within 60 days

Certificate to be sent the financial intermediary within 30 days

Send the disclosure to HMRC within

7 months (if using composite rate)

10 months (if using normal rates)

HMRC will send disclosure certificate within 30 days

Send disclosure certificate to financial intermediary within 30 days

If contacted by financial intermediary 18 months to demonstrate compliance

If no contact from financial intermediary there is still a need to disclose



Statistics to September 2012

3,227 Registrations

2,152 Disclosures

£377m Yield from settled cases

£88m paid on account of cases not yet settled

1,158 settlements under £100,000

555 settlements between £100,001 and £1,000,000

60 settlements between £1,000,001 and £5,000,000

5 settlements £5,000,000+

Average settlement £186,000


What is happening in Liechtenstein?

Financial Intermediary legislation started on 1 September 2010 At any time up to 31st March 2015, the Financial Intermediary will identify and then

contact any clients who may be liable to taxation in the UK in relation to Liechtenstein based investments.

Once contacted the client will have up to 18 months to prove that they are compliant with their UK tax obligations.

If the required documentation is not provided the Financial Intermediary will cease to provide services and require the removal of investments out of Liechtenstein, or

exceptionally, keep the investments impose financial sanctions.


Financial Intermediary writes to you, you need to provide them with…

Provide written confirmation from legal, tax or accounting adviser confirmation you have already complied with UK tax obligations or applied under another disclosure facility

Evidence to prove already met UK tax obligations for Liechtenstein investments

A certified or notarised copy of your self assessment tax return showing Liechtenstein investments

Evidence not a UK taxpayer

Registration and disclosure certificates sent to you after registration under the LDF

Self Certification



Particular issues

Offshore Income Gains and LossesHMRC Offshore Funds Manual and Savings & Investment Manual

Time limits for claiming capital lossesThird joint declaration

HSBC ‘stolen data’ casesOptions A, B or C

Composite Rate Option“Where the person makes an election to apply the CRO, the calculation will be accepted by HMRC in lieu of all UK taxes due on the actual basis … provided that such calculation is full and accurate…”


Swiss agreement

Published 6 October 2011

FA 2012 s218 and Schedule 36 Switzerland

Date of commencement 1 January 2013

A one-off payment on 31 May 2013 to clear past unpaid tax liabilities, and/or

a withholding tax on income and gains for the future from 1 January 2013, or

Authority to the Swiss bank or agent to provide details of Swiss assets to HMRC.

Enhanced cooperation by way of exchange of information


One off payment

Apply the formula

T= 34%* [2/3 (Cr – n/8* Cb) + 1/3(n/10*Cr + 2/10*(average of C9’+C10’)]

Min 21%

Maximum increased by Protocol (Up to 41%)


Non Domiciliaries and the Swiss agreement

The past

can still use one off payment or Voluntary Disclosure

But also…

Opt out (but no clearance of funds)

Apply “Self Assessment “ Method

Certificate required from lawyer, accountant or tax adviser (of a relevant body) confirming person is non domiciled and has claimed status for 2010/11 and 2010/12


Withholding tax

Rate to be applied

Interest 48%

Dividends 40%

Capital Gains 27%

Other income 48%

Can make Voluntary Disclosure and no Withholding Tax

No opt out for those non UK domiciled, but withholding tax only on UK source or income and gains remitted to UK .


Measure to safeguard agreement’s purpose

Swiss authorities will provide information on request if identity and “plausible grounds” provided. The details of the Swiss paying agent does not have to be provided by HMRC

Plausible grounds include where HMRC identify tax risk

UK authorities will notify UK taxpayer in advance unless they believe to do so will seriously prejudice collection of tax

Information can extend to 10 years prior to the date of the request

Maximum number of requests in first three years, 500


General Anti-Abuse Rule (GAAR)

“Being introduced to deter and counter abusive tax avoidance, while providing certainty, retaining a tax regime that is attractive to businesses and minimising costs for taxpayers and HMRC”

December 2010 – Graham Aaronson QC asked to lead a study that would consider if a General Anti-Avoidance Rule could deter and counter abusive tax avoidance.

Report published 11 November 2011

Budget 2012 – Government accepted the recommendations of the Aaronson Report to introduce a GAAR targeted at artificial and abusive tax avoidance schemes

7 November 2012 - Government to appoint interim advisory group appointed to over the development of guidance on the new GAAR

Completion early 2013


Any Questions?

Steve Besford

[email protected]

020 7535 1437

mailto:[email protected]