Workshop: Private client: tax nothings

A problem shared is a problem halved. On this principle clients will, from time to time, confide in their solicitors with the half hope that they will be reassured they have nothing to worry about.

Over the last few months with the unremitting publicity surrounding '¨tax avoidance and multi-nationals, tax evasion and tax havens, and tax exchange of information at the G8 summit, clients' concerns may be turning to potential '¨tax problems.

There is a lot to be concerned about. With increased transparency, HMRC are more likely than ever to identify transgressions. With the forthcoming General Anti Abuse Rule (GAAR), tax planning will be under increased scrutiny. With new penalty legislation, people who get it wrong are more likely to have draconian financial penalties imposed (up to 200 per cent of tax lost), more likely to be named and shamed (under new 'HMRC' powers), and more likely to face criminal prosecution if there has been tax evasion (a promised five-fold increase in prosecutions).

If advisers are unlikely to be able to reassure clients that there is nothing to worry about, there is some slight reassurance to be had from options to mitigate major problems into manageable problems.

Where there is a past failure to make a fully accurate tax return, HMRC have a range of disclosure options. The best known of these relate to instances where there is an undisclosed offshore asset held directly or via a company or trust. There are a number of disclosure options depending on which jurisdictions are involved. They have slight differences and sometimes the disclosure facility of one jurisdiction can be used to disclose assets held in another jurisdiction.

A common factor is that all have the incentive of reducing tax and penalties '¨to incentivise disclosure. The degree to which this can be done varies according to which is chosen and the nature of the arguments used.

Another type of disclosure facility relates to where people have under-declared tax liability relating to property. This may have involved an undeclared sale of a property, which was not your home or undeclared rental income.

In a risk/reward analysis, disclosure facilities relate to where you have deliberately misdeclared your tax position. This constitutes tax evasion, which is a criminal offence. The risk is that you will be put into prison and/or be required to pay out very large amounts of tax, interest and penalties. The reward is that you won't be put in prison and be required to pay out considerably less cash. This is a game where the stakes can be high and experienced advice should be sought.

Moving away from evasion of tax to avoidance, the question is whether the avoidance works. The legislation is famously complex. A further tier of complexity has been added with the new GAAR, which will be introduced following Royal Assent in this summer.

Again, the wise client will seek a tax health check. As with normal health checks, not finding out about a problem tends to make it worse, not better. As with normal health checks, the sooner they are carried out, the better chance of dealing with any problems. If we find out about a problem in time we can sometimes make it go away. We can certainly ensure it gets dealt with in the least painful manner.