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Tax Evasion and Avoidance

By admin
01 Mar 2015
Tax Investigation

Waiting in the shadows, quietly with only a soft mist appearing as his breath fell into the cold air. The Inspector revelling in the benefits of the 2% reduction on Cider duty duly grimaced as he contemplates the forthcoming workload. As his breath dispersed he stepped out of the shadows holding back laughter at the two new criminal offences. He then got on his push bike and rode to work.

Mr Osbourne, eloquent as ever delivered the following news:

  • New disclosure facility: A limited disclosure facility will run after the existing facilities close, with tougher terms than existing facilities, including penalties of at least 30% and no safety from criminal investigation.

  • Notification Common Reporting Standard: Introduction of a requiring financial intermediaries and tax advisers to notify their UK resident customers with UK or overseas accounts to explain the full impact of the Common Reporting Standard, the opportunities to disclose and the penalties they could face for non-disclosure. A £4m investment in data analytics to make best use of the information which will be collected under the Common Reporting Standard was announced.

  • Liechtenstein Disclosure Facility: The disclosure end date of the Liechtenstein Disclosure Facility will shorten from April 2016 to December 2015.

  • Crown Dependencies Disclosure Facilities: The disclosure end date of the Crown Dependencies Disclosure Facility will shorten from September 2016 to December 2015.

  • Serial Avoiders: The consultation “Strengthening Sanctions for Tax Avoidance” closed on 12 March and legislation will be introduced in a future Finance Bill to introduce tougher measures for those who persistently enter into tax avoidance schemes. The legislation will include:

    • A special reporting requirement and a surcharge where the latest tax return is inaccurate as a result of a further failed avoidance scheme

    • Restriction to access to reliefs

    • Measures to permit naming offenders

    • Widen the current scope of the Promoters of Tax Avoidance Schemes regime by bringing in promoters whose schemes regularly fail

  • General Anti Abuse Rule Penalties (GAAR): Again, following the consultation “Strengthening Sanctions for Tax Avoidance” legislation will be introduced that will increase the deterrent effect of the GAAR through tax-geared penalty that applies to cases tackled by the GAAR.

  • Direct Debt Recovery: Legislation will be introduced to allow tax debts to be collected from taxpayer’s bank accounts.

  • Two New Criminal Offences: “Tax evaders and the professionals who enable tax evasion will face tough new sanctions, including two new criminal offences and higher penalties, under a new regime to crack down on offshore evaders” the Chief Secretary to the Treasury Danny Alexander announced today (Thursday 19 March).

These are serious measures on top of existing measures that are destined to result in more revenue and more prosecutions. The pre-election news is currently all about the government overspend when compared to Revenue intake. This cannot be a mirage of efforts that won’t have an impact. For example the regulations to implement the UK’s automatic exchange of information agreements expects to yield results:


It is not all about the money though. The measures, which we have seen over the past few years, are deterrents to those trying to reduce their tax liability (although everyman used to have that right – IRC V Duke of Westminster 1936). Arguably everyman still has that right although the Revenue don’t seem to know what they consider right or wrong, what is tax mitigation, avoidance or evasion. This makes for a worrying situation given the two new criminal offences! Thankfully a last chance disclosure facility will be introduced!

The plan is:

  • A new strict liability criminal offence for offshore evasion

  • Criminal offence for failure to prevent the facilitation of tax evasion

  • Increase the financial penalties faced by evaders

  • Introduce new civil penalties on those who enable evasion so they will face the same penalty as the tax evader

  • Publicly name and shame both evaders and those who enable evasion

The new strict liability offence basically means that proving “intent” won’t be necessary: currently tax evasion is where someone intends to defraud the Revenue, whereas the new offence will remove the need to prove an intention (or demonstrate no intention).

The increased financial penalties proposed will also link the penalty to the value of assets kept in an offshore bank and not the tax due. This is so much a nastier penalty!

Chief Secretary to the Treasury Danny Alexander said “I have made a great deal of progress in shutting down those loopholes and clamping down on aggressive avoidance and evasion.” It is good for Danny to take responsibility although we wonder if he is also to blame for the points we have raised before:

  • HMRC have a duty to inform taxpayers what is acceptable or not in a timely manner. Why then are they now attacking tax planning that has been well established for a decade or more? Why didn’t they legislate a decade ago?

  • HMRC (or Parliament) have a duty to clearly define acceptable tax planning, tax mitigation, tax avoidance and tax evasion. Despite the phenomenal amount of powers introduced, they have still failed this simple task. It appears that a number of Lords as well as my favourite ex Prime minster, Tony B all know what is acceptable.

Mr Inspector having arrived at the offices and locked up his bicycle will be pleased to know that Danny has also “authorised over £1 billion of investment in HMRC to ensure they have the tools to do their job.” Not sure what this is to be spent on although a few decent coffee machines for visitors would be nice. It is suspected that a good amount will be spent on continuing the growth and power of IT systems and fraud detection software (Connect) as opposed to employing more or creating a bonus pool.

Danny also announced “The Chief Secretary has also today called on the tax and accountancy professional regulatory bodies who police professional standards to maximise their role in setting and enforcing clear standards around enabling and promoting avoidance.” It is therefore highly likely that reputable firms following the conduct of their professional bodies will steer clear from aggressive tax planning.

The new regime will be subject to consultation and it is something we will certainly be involving ourselves in. If only to try and make sure that avoidance and evasion are clearly defined in respect of this regime. Given the history of the past few years, the regime will be close to what is proposed.

All those that have undertaken tax structuring, in particular offshore, should seek an independent view on whether they are at risk. In particular, their advisers and those administering the structures should also consider their risks.

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