Is anywhere safe from HMRC's watchful eye?

Given the flood of recent HMRC initiatives, it is easy to miss the updated ‘no safe havens’ strategy, but that would be a mistake. This is a game changer. While its focus is on taxpayers with interests in offshore jurisdictions – a significant number in the 21st-century global village – the mere fact
of incorrect reporting will
merit penal consequences.

HMRC sketched out what has happened, is happening and is likely to happen. From 2009 to 2013, the UK reached various information exchange agreements: Liechtenstein, Switzerland, Channel Islands and British overseas territories.

The Organisation for Economic Co-operation and Development’s drive towards automatic information exchange was endorsed by
G20 finance ministers and subsequently by most of Europe, America, Australia, India, Russia and Saudi Arabia. Some states, including Singapore, have not followed suit, so HMRC is adopting a range of strategies
to address this.

A lot of cross-referenced information is going to be flowing between jurisdictions. Not signing up does not exempt your clients from consequences.

The 2014 Budget announced measures to tackle tax leakage linked to offshore interests. Financial intermediaries are collecting information under Foreign Account Tax Compliance Act and ‘son of FATCA’ agreements. G20 nations
will detail implementation plans for more general automatic information exchange.

Future proof

We know the near future. In 2015, HMRC will introduce sanctions for non-compliance linked to offshore territories. The suggestion is to introduce an automatic criminal offence for non-compliance involving taxable offshore income.

This is referred to as ‘strict liability’ as the usual burden of proof on the state to establish an intention to deceive would be removed. By default, failure to comply is itself sufficient to establish criminality.

In 2016, huge amounts of information will flow into the
UK from other jurisdictions,
and the advantages of the various disclosure facilities linked to the information exchange agreements expire.

In 2017, the consequences of 2009 to 2016 will begin to play out. The implicit suggestion is that, like the Assyrian people, HMRC will come down like the wolf on the fold. Some hapless taxpayers, though guiltless, must expiate their father’s sins. Well-meaning plans made in a different time will destroy what they were meant to protect.

In anticipation, sophisticated IT systems have been introduced to enable state agencies, such as HMRC, not simply to exchange huge amounts of information but to link it to individuals.

HMRC will interrogate information from a range
of jurisdictions, from financial intermediaries, from Companies House, from property transactions, from third parties and start to join the dots, which is why the system is called Connect. It has made 4 billion connections so far in its short life.

Attention seekers

HMRC wishes to identify taxpayers who merit attention. The more complex your affairs, the more exposed to challenge. The consequences of being found to be non-compliant have become more severe. For HMRC, as it is the taxpayer’s duty to ‘get it right’, financial penalties are the default position if you don’t. The quantum of these penalties have increased under legislation post-2007.

HMRC intends to authorise seven times more cases for criminal proceedings between 2010 and 2011, and 2014–15.
Apart from jail and financial penalties, it wants to “increase the emotional cost” of non-compliance by publishing names of people deemed to deserve reputational damage. Non-compliance is more
likely to be identified and will probably result in significant financial, reputational or criminal consequences.

Where transactions involve offshore transactions, whether a simple account or structures involving trusts, companies or pensions (or a combination), or reliance on non-resident or non-domicile status, you must be able to prove your innocence.

Given the complexity of the legislation, the vagaries of lifestyle changes and the sometimes sketchy historical records, the reality is that a high proportion of people are exposed to challenge.

Considering some recent rulings on the responsibility of advisers, and the potentially severe consequences for clients, those looking after clients with offshore interests may wish
to review their position. SJ

Andrew Watters is a director at Thomas Eggar