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Claire Shelemay examines HMRC’s latest attempts to clamp down on tax avoiders – including a new taskforce targeting lawyers
In September 2012, HM Revenue & Customs (HMRC) launched a taskforce targeting London lawyers. While some in the legal profession were surprised by the launch, this, in fact, forms part of HMRC’s wider strategy of focusing on a number of sectors and professions across the country.
Taskforces
In many ways, HMRC’s targeting of the legal profession is logical given the high earnings of some lawyers, their professional status, and their potential knowledge of tax law and the available tax schemes. By virtue of barristers’ self-employment, there is also more scope for potential undeclared taxable income. As individuals with professional qualifications, HMRC has an expectation that lawyers and barristers seek suitable tax advice and perhaps “go the extra mile” to ensure the accuracy of their tax returns. Depending on the complexity of the tax return itself, HMRC may perceive not using a tax agent as a risk. Following the launch of the taskforce, the legal profession can expect an increased number of enquiries into tax returns and more focus on specific areas within the tax returns.
Moreover, this is consistent with HMRC’s general approach. HMRC has launched approximately 30 taskforces since May 2011, with the purpose of scrutinising the tax affairs of trade sectors established as “high-risk” and expects to yield over £50m as a direct result of the taskforces launched in 2011/2012. The nationwide taskforces launched by HMRC in September 2012 seek to yield £19.5m from trades including: grocery and retail in south and north Wales, hair and beauty in the north east, restaurants in the south east and Solent, the motor trade in Scotland and of course, the legal profession in London. HMRC hopes to collect £3m of the budgeted £19.5m from the legal profession specifically.
Other units
In addition to the launch of taskforces, HMRC continues to take a strong stance against tax avoidance and tax evasion. In September 2012, HMRC released figures indicating that the High Net Worth Unit (HNWU) brought in £500m in additional tax. HNWU head, Martin Randall, explained that there is a strong focus on high net worth individuals as “the tax affairs of the richest people in the country are, by their nature, complex, and that’s why we have focused resources on getting their tax right”.
Within this context, HMRC recruited 100 new inspectors in their Affluent Compliance Team in January 2013 following additional investment from the government of £5m, clearly indicating their persistence in this area. This unit focuses on those whose wealth ranges between £1m- £2.5m. This team is dedicated to ensuring that the wealthy “play by the rules” and was reported to have collected an additional £75m in tax by December 2012. The unit specifically looks at high net worth individuals who habitually use avoidance schemes, have a low effective rate of tax across their total income, have bank accounts in Switzerland, who appear to be understating their tax liability, fail to file their self assessment tax returns on time, avoid or evade stamp duty on property purchases, or have UK and offshore property portfolios. All of the above could be applicable to those in the legal profession.
Options for rule-breakers
So, what options exist for those that do, fall foul of the rules? Although HMRC seeks to crack down on tax avoidance and tax evasion, there is also a growing emphasis on encouraging voluntary disclosure. There are a number of settlement opportunities and amnesties available as an additional incentive and cost-efficient method of yielding much needed tax revenue for the government.
In December 2012 HMRC launched details of settlement opportunities for participants in tax avoidance schemes which include UK GAAP Partnerships, Film Production Partnerships, Partnership Reliefs and Allowances and UK GAAP Corporates. HMRC wrote to participants in these schemes setting out the specific terms for settlement. HMRC also launched a number of disclosure opportunities during 2011 and 2012 to enable disclosure of any UK tax irregularities; such as the Plumbers’ Tax Safe Plan (which ironically was open to any UK taxpayer), so although it is hard to predict the next disclosure opportunity, details of new opportunities are likely to be provided throughout 2013.
Of course, taxpayers can always come forward to make a voluntary disclosure to special units within HMRC which are geared to review and accept these types of disclosures, independent of any available campaigns or initiatives. Indeed, unprompted disclosures are looked upon favourably by HMRC when levying any penalties.
Where there are UK tax irregularities relating to offshore assets there exists a number of options, most notably the Liechtenstein Disclosure Facility (LDF), which can be used as long as an account holder have a Liechtenstein footprint, which can be as simple as opening an account in the principality, or the Swiss-UK agreement, which is only open to those with Swiss assets. The most beneficial option for those with any undisclosed offshore assets looking to legitimise their tax affairs, decrease potential penalties and avoid any possible prosecution, is the Liechtenstein Disclosure Facility. This is a partial amnesty which restricts the period of review to the period post 6 April 1999 and applies a fixed penalty of 10% for most years. Given that HMRC increased the potential penalties for offshore tax evasion to 200%, the LDF is clearly an attractive opportunity to disclose offshore assets. Under the Swiss-UK tax agreement, which came into force from 1 January 2013, all Swiss account holders in the UK must choose between paying a one-off deduction of between 21% and 41% and paying a withholding tax going forward, or disclosing the account to HMRC.
The clear message is that meticulous care needs to be applied in filing tax returns and any irregularities should be disclosed.
Claire Shelemay is a tax investigations manager at accountancy firm BDO LLP http://www.bdo.uk.com/services/tax/tax-investigations
Taskforces
In many ways, HMRC’s targeting of the legal profession is logical given the high earnings of some lawyers, their professional status, and their potential knowledge of tax law and the available tax schemes. By virtue of barristers’ self-employment, there is also more scope for potential undeclared taxable income. As individuals with professional qualifications, HMRC has an expectation that lawyers and barristers seek suitable tax advice and perhaps “go the extra mile” to ensure the accuracy of their tax returns. Depending on the complexity of the tax return itself, HMRC may perceive not using a tax agent as a risk. Following the launch of the taskforce, the legal profession can expect an increased number of enquiries into tax returns and more focus on specific areas within the tax returns.
Moreover, this is consistent with HMRC’s general approach. HMRC has launched approximately 30 taskforces since May 2011, with the purpose of scrutinising the tax affairs of trade sectors established as “high-risk” and expects to yield over £50m as a direct result of the taskforces launched in 2011/2012. The nationwide taskforces launched by HMRC in September 2012 seek to yield £19.5m from trades including: grocery and retail in south and north Wales, hair and beauty in the north east, restaurants in the south east and Solent, the motor trade in Scotland and of course, the legal profession in London. HMRC hopes to collect £3m of the budgeted £19.5m from the legal profession specifically.
Other units
In addition to the launch of taskforces, HMRC continues to take a strong stance against tax avoidance and tax evasion. In September 2012, HMRC released figures indicating that the High Net Worth Unit (HNWU) brought in £500m in additional tax. HNWU head, Martin Randall, explained that there is a strong focus on high net worth individuals as “the tax affairs of the richest people in the country are, by their nature, complex, and that’s why we have focused resources on getting their tax right”.
Within this context, HMRC recruited 100 new inspectors in their Affluent Compliance Team in January 2013 following additional investment from the government of £5m, clearly indicating their persistence in this area. This unit focuses on those whose wealth ranges between £1m- £2.5m. This team is dedicated to ensuring that the wealthy “play by the rules” and was reported to have collected an additional £75m in tax by December 2012. The unit specifically looks at high net worth individuals who habitually use avoidance schemes, have a low effective rate of tax across their total income, have bank accounts in Switzerland, who appear to be understating their tax liability, fail to file their self assessment tax returns on time, avoid or evade stamp duty on property purchases, or have UK and offshore property portfolios. All of the above could be applicable to those in the legal profession.
Options for rule-breakers
So, what options exist for those that do, fall foul of the rules? Although HMRC seeks to crack down on tax avoidance and tax evasion, there is also a growing emphasis on encouraging voluntary disclosure. There are a number of settlement opportunities and amnesties available as an additional incentive and cost-efficient method of yielding much needed tax revenue for the government.
In December 2012 HMRC launched details of settlement opportunities for participants in tax avoidance schemes which include UK GAAP Partnerships, Film Production Partnerships, Partnership Reliefs and Allowances and UK GAAP Corporates. HMRC wrote to participants in these schemes setting out the specific terms for settlement. HMRC also launched a number of disclosure opportunities during 2011 and 2012 to enable disclosure of any UK tax irregularities; such as the Plumbers’ Tax Safe Plan (which ironically was open to any UK taxpayer), so although it is hard to predict the next disclosure opportunity, details of new opportunities are likely to be provided throughout 2013.
Of course, taxpayers can always come forward to make a voluntary disclosure to special units within HMRC which are geared to review and accept these types of disclosures, independent of any available campaigns or initiatives. Indeed, unprompted disclosures are looked upon favourably by HMRC when levying any penalties.
Where there are UK tax irregularities relating to offshore assets there exists a number of options, most notably the Liechtenstein Disclosure Facility (LDF), which can be used as long as an account holder have a Liechtenstein footprint, which can be as simple as opening an account in the principality, or the Swiss-UK agreement, which is only open to those with Swiss assets. The most beneficial option for those with any undisclosed offshore assets looking to legitimise their tax affairs, decrease potential penalties and avoid any possible prosecution, is the Liechtenstein Disclosure Facility. This is a partial amnesty which restricts the period of review to the period post 6 April 1999 and applies a fixed penalty of 10% for most years. Given that HMRC increased the potential penalties for offshore tax evasion to 200%, the LDF is clearly an attractive opportunity to disclose offshore assets. Under the Swiss-UK tax agreement, which came into force from 1 January 2013, all Swiss account holders in the UK must choose between paying a one-off deduction of between 21% and 41% and paying a withholding tax going forward, or disclosing the account to HMRC.
The clear message is that meticulous care needs to be applied in filing tax returns and any irregularities should be disclosed.
Claire Shelemay is a tax investigations manager at accountancy firm BDO LLP http://www.bdo.uk.com/services/tax/tax-investigations
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In September 2012, HM Revenue & Customs (HMRC) launched a taskforce targeting London lawyers. While some in the legal profession were surprised by the launch, this, in fact, forms part of HMRC’s wider strategy of focusing on a number of sectors and professions across the country.
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