Tax evasion Archives - London Chartered Accountants Blog

Weak links

The link does not have to be especially strong – an associated person can be an employee, agent or contractor – although they do have to be acting for your firm. The firm’s only defence is having preventative measures in place. It does not matter if the senior management were in the dark, and so measures must be embedded in procedures and communicated to everyone associated with your firm. Simply carrying out a risk assessment and putting it in a drawer will not protect your firm.

Broad scope

The scope of the rules is breathtakingly wide. There are two offences:

1. Evading UK tax

Even if your firm has no UK presence at all, it could still be prosecuted if you assist in evading a UK tax.

2. Evading foreign tax

If your firm has a person acting on its behalf in the UK, then if they facilitate foreign tax evasion when in the UK your firm could be prosecuted. However, the evasion must be a criminal offence in both the UK and the foreign country.

What should I do?

The first step is to identify a person or team responsible for implementing preventative measures. A risk assessment should then be carried out, evaluating business operations identifying associated persons. It may be that you consider your firm to be low risk, but it is important to document why you came to this conclusion. Procedures, for example due diligence and reporting, should be designed and implemented, and then communicated to all associated persons identified in the risk assessment. Finally, it is important to keep everything under review.

What if I identify tax evasion?

If you find out that a person associated with your firm has assisted with tax evasion, this should be reported. UK tax evasion is reported to HMRC, and overseas tax evasion to the Serious Fraud Office. This does not give immunity from prosecution – the only defence remains the procedures you have in place – but it forms part of your defence and could mitigate penalties if your firm is convicted.

Whilst the new regime only covers evasion which has taken place since 30 September 2017, this includes evasion which started before then but is still ongoing. It is therefore important to act now and get preventative measures in place. Senior management must be committed to the process, and create a positive culture in the firm.

Introduction

Tax evasion has been in the news over the last two weeks following the articles in the press about bank accounts at HSBC in Geneva. Criticism has been levied at HM Revenue & Customs in Parliament and in the press, for not prosecuting people who had bank accounts in Geneva and who had not disclosed the income on their tax returns. The policy of HM Revenue & Customs has been to encourage people to make a full disclosure under a Disclosure opportunity and, if they don’t take advantage of this, they face the risk of prosecution.

Disclosure Facilities

Currently there are Disclosure Facilities for the Channel Islands and Isle of Man. These are primarily aimed at giving people a chance to disclose undeclared income from bank accounts held in these jurisdictions and the deadline for registering with HMRC to use these facilities is 30 September 2016. These facilities can be used to make other disclosures to HMRC apart from undeclared income on bank accounts or securities portfolios held at banks in the Channel Islands or Isle of Man. There is also the Liechtenstein Disclosure Facility. This remains open until April 2016. The terms of this facility are particularly favourable and it has been used extensively in order to regularise the position for people who had undeclared Swiss bank accounts. This facility can also be used in some cases to address other sources of undeclared income and gains.

UK/Swiss Tax Agreement on Swiss Bank Accounts

In 2012, the UK Government made an agreement with the Swiss Government regarding Swiss bank accounts. As a consequence of this agreement people with undeclared Swiss bank accounts faced a choice; agree to voluntary disclosure of income and gains on the account or face a one-off tax charge (typically about 20%) on the capital in the account and ongoing high rates of withholding tax on income and gains. Many people chose to use the Liechtenstein Disclosure Facility in order to deal with the past and avoid having to pay the one-off charge. This facility may still be useful for people who have paid the one-off charge in some cases.

Other Disclosure Opportunities

HM Revenue & Customs have also announced various other disclosure opportunities aimed at particular sectors to encourage people to make disclosures. Previous initiatives were aimed at the healthcare sectors, plumbers and electricians. The latest such initiative was announced recently and is called the Solicitors Tax Campaign. People working in the legal profession as a solicitor in a partnership or company or as an individual can make a voluntary disclosure of any undeclared income. Anyone wishing to use this disclosure opportunity must notify their intention to HMRC by 9 March 2015 and make the disclosure by 9 June 2015.

Automatic Exchange of Information

The UK Government has signed a large number of information exchange agreements with other countries. These include the Channel Islands, Isle of Man, Bermuda, British Virgin Islands, Cayman Islands and Gibraltar. Under these agreements there will be automatic exchange of information so that income earned by UK residents in countries which have signed these agreements will automatically be notified to HMRC.

We have a good deal of experience in making disclosures under the HM Revenue & Customs disclosure opportunities. If you have any issues that you would like to discuss in connection with the above then please contact a member of our tax team.