Cracking down on tax avoidance
HMRC’s aggressive anti-avoidance drive has continued to gain traction. This began when it cleverly started gaining widespread public support from the publicity surrounding alleged tax avoidance by Jimmy Carr, Starbucks, and Amazon amongst others.
Film industry avoidance schemes have also been in the news recently. One story involved an accountant and an IFA – who devised and promoted a number of schemes – and three investment bankers who invested in them, who were all jailed for a total of 27.5 years. The scheme was found to be bogus and underpinned by false documents specifically to create a loophole.
In the news this week is another film scheme where a corporate financier and former investor in Glasgow Rangers FC has been charged with an alleged £134 million in tax fraud.
HMRC has been attempting to blur the boundary between evasion (which is criminal) and cunning avoidance (which is not) by resolving some avoidance schemes.
However, this year saw HMRC’s final triumph, in the civil Tribunal, against the totemic Montpelier Isle of Man tax scheme that had HMRC congratulated itself in 2015 for a record breaking year in tackling tax fraud and tax evasion, even predicting it was on target to do better this year. But exactly what did they take into account when measuring this success? Here I unpack some of the latest figures and developments from the HMRC, whilst taking into account what’s in store for tax fraud and tax evasion in 2016 and beyond.
Toughening criminal prosecutions
In total, 1,288 tax fraud prosecutions were made last year, resulting in 407 years of prison sentences. This included some high profile, lengthy sentences and clearly shows a toughening approach in the more serious cases. These have involved tax scheme promoters, accountants, financiers, lawyers, etc.
However, at the same time, the across-the-board average was under four months custody, confirming that many cases were ‘low-hanging-fruit’ and relatively minor.
These included tobacco smugglers and low-level VAT fraudsters. Dawn raids also increased to 593, which is a 20% increase from the previous year and a staggering 200% increase when compared to four years ago.
Due to a merger of Specialist Investigations and Criminal Investigations, a new Fraud Investigation Service has been created that has pronounced more prosecutions are on the horizon. HMRC has also promised to get tougher on tax avoidance and offshore evasion
Undeclared income campaigns
Various campaigns have been waged against residential landlords, medical professionals, solicitors, and online traders. These have offered one-off opportunities with lower penalty incentives to ‘clear the slate’ and have brought in a significant amount of unpaid tax.
However, there have been relatively few criminal investigations or prosecutions for those who have not taken up these voluntary disclosure opportunities, and this has undermined the impact of them.
However, the biggest news of last year – which will undoubtedly continue into 2016 and 2017 – is the changes made in offshore tax evasion.
Developments in offshore tax evasion and disclosure
Ever since the first success in getting UK account holder details from the Irish banks, offshore tax evasion and disclosure has been a major focus for the HMRC, and it’s something that has steadily seen development since. There have been a number of different disclosure facilities, offering various time-limited, one-off opportunities to ‘fess-up’ and pay much lower penalties, with some also guaranteeing immunity from criminal prosecution.
Whilst directed at undeclared income from offshore accounts, and ultimately offshore assets and undeclared UK income, these could become very useful vehicles for those ‘in the know’. They could help regularise UK tax irregularities, i.e. tax evasion that’s about to hit the fan, with very low penalties and avoidance of any criminal sanction.
The last major ‘special offer’ in this run was closed on 31st December 2015 and concerned the LDF (Liechtenstein Disclosure Facility). In the past 6 years, over 6,000 taxpayers have made disclosures and agreed settlements totalling £1.3 billion. Perhaps, it was too good a deal?
A final interim scheme will now run until April 2017 but is likely to have much less attractive penalties and will not provide immunity from prosecution.
Brave new world?
The final big news is that from September 2017, the HMRC will start to receive details on UK taxpayers from over 90 countries worldwide under the Common Reporting Standards automatic data exchange. This will be fed into HMRC’s omnipotent software (CONNECT). Ultimately, there will be nowhere left to hide and less need for any more HMRC concessions.
Finally, HMRC plans to increase penalties for using more secretive jurisdictions to circumvent CRS, offer enhanced financial incentives to whistleblowers, impose penalties on those who enable evasion, and publically name & shame all of the above.
It may not end there either. Until the last draft Finance Bill published in December 2015, it was the HMRC’s intention to introduce a strict liability criminal offence of failing to declare offshore income and gains. Will this be resurrected again in the future?