By Jennifer Hill –
UK AUTHORITIES have stepped up their campaign targeting tax avoidance via offshore arrangements, as firms that have used aggressive tax-avoidance schemes to pay benefits and shares to employees are also now facing a crackdown.
Experts have claimed a “heavy handed” approach adopted by Her Majesty’s Customs and Revenue (HMCR) on offshore accounts could alarm many people.
And a recent House of Lords ruling has been branded the “latest blow” in a long line of government attacks on employee benefit trusts (EBTs) used for tax avoidance.
HMCR’s offshore fraud projects team has written to a string of people with offshore accounts, giving them 30 days to reply with an explanation of why there is no tax liability arising from those accounts.
Andrew Watt, director of tax investigations at independent tax consultancy Chiltern, warned: “These letters are being issued in cases where HMRC feel that tax fraud has taken place but there’s sufficient doubt to stop short of pursuing the taxpayer under the Hansard process, which deals with suspected serious tax fraud.
“This is a very heavy-handed approach that is likely to frighten those people that receive them. Many people are unaware of whether their overseas income is taxable in the UK and may not have thought to take professional advice.
“Receiving a letter from HMCR referring to tax evasion and possible prosecution will be extremely alarming.”
Those who receive the letters should check their tax affairs are in order, Watt advised.
“It’s important to bear in mind that, according to HMRC, these letters do not constitute their opening an inquiry,” he added.
“However, it’s unclear what action HMCR would take if a recipient of such a letter was unable to reply within the prescribed 30 days.
“In the first instance, check you have no undisclosed non-UK bank income and, if this is the case and your tax returns are correct, reply to that effect within the deadline.”
Those with undisclosed non-UK bank income should seek professional advice.
Offshore bank account holders have lately been hit by a controversial cross-border tax on interest income from savings. The EU Savings Directive, introduced from the start of last month, means those who hold a bank deposit account in the likes of Jersey, Guernsey or the Isle of Man – which previously saw them avoid the taxman’s clutches until deposits were bought back to the UK – could be hit with a hefty tax bill.
At the same time, the Inland Revenue has set up a special team tasked to ensure that outstanding tax from EBTs is hotly pursued.
It follows a Lords ruling on the McDonald v Dextra case, which centred on a group of companies in the mobile telecoms industry. They set up a trust in a tax haven, which then created further sub trusts. Funds were lent to various employees, but mainly directors.
The Revenue has been keen to sweep away EBTs, used to gain tax relief from both ends – companies paying in and employees receiving benefits out.
“For many of Scotland’s businesses, this may well be the final nail in the coffin for aggressive tax planning,” said Ricky Murray, head of tax in Scotland at Baker Tilly. “And with estimated deductions totalling many hundreds of millions of pounds, expect no mercy.”
He said a more cautious approach to tax planning was required, including tax-approved schemes to deliver shares and pension benefits.
The contributions affected are those made before 27 November, 2002. Special legislation was introduced with effect from that date to block artificial schemes.
Businesses at risk of losing out as a result of the Lords ruling might still be able to obtain tax deductions by paying funds to employees in a taxable form, said Murray.
Source: Scotsman
Photo credit: TaylorMiles via Visual Hunt / CC BY-NC-SA
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