Wealthy people are increasingly being investigated to tackle tax evasion. Following the Panama Papers leak HM Customs and Excise (HMRC) said it would intensify its crackdown on those hiding assets offshore.
Last year 2019-20 HMRC launched 430 investigations into sophisticated tax evaders, including wealthy individuals and companies, a 26% increase on the previous year and 65% higher than the 260 investigations it launched in 2017-18
Episode 21 -
HMRC Sophistication, Andrew McKenna: McKenna Tax Consultancy
In Episode 21, Caroline Garnham talks to former co-head of the team responsible in HMRC for offshore compliance and fraud – Andrew McKenna now CEO of McKenna Tax Consultancy. Caroline and Andrew discuss how sophisticated and intelligent HMRC is now in obtaining and processing information and data. Andrew tells Caroline that due to Covid-19 HMRC is under pressure to produce more revenue and will naturally start where the money is – the rich. As Andrew said during his podcast HMRC will ‘hit the wealthy hard’.
Investigations related to the Panama Papers are estimated to have brought in more than £190million in extra tax last year according to Treasury data. This was raised by investigating the clients of just one institution – imagine how much tax it could raise once the information is known from all financial institutions across the world!!!
Raising tax from investigations is highly lucrative. HMRC can not only charge the tax lost but is obliged in addition to charge a minimum penalty of 100% with a maximum 200% and can also press criminal charges.
The Financial Times quoted Brian Peccarelli, chief operating officer for customer markets at Thomson Reuters as saying ‘The increase in investigations is tangible evidence of how hard HMRC is working to stamp out criminal activity among what are a key group of tax offenders’
In March HMRC sent out thousands of letters to individuals according to the Financial Times ‘warning them that failure to declare foreign income could lead to them facing criminal charges’.
My fear is that those in receipt of these letters simply do not realise that they are playing with fire, if they put them on the ‘to do’ list and then do nothing about them. This response is sheer madness. Failing to co-operate with the HMRC is likely to increase the penalty charged from 100% towards 200%.
As Andrew McKenna Podcast Professional member of Carolines Club and former joint head of compliance and offshore investigations at HMRC says, the Government has invested heavily in artificial intelligence systems which not only collate the information at its finger tips from self-assessment forms and VAT returns but also from data exchanged by about 100 tax authorities under the Common Reporting Standard a 2014 OECD agreement to help offshore tax probes.
Every financial institution across the globe with foreign accounts is now obliged to collate the information on its foreign customers and exchange this with the countries in which their customer is tax resident.
If the information received by the tax authority does not match with the individual’s tax return, then HMRC will, in due course, send out a nudge letter.
Of course the taxpayer is at a serious disadvantage; first he or she does not know what information has been received by the tax authority, and may not be aware that the advice or opinion they have or are relying on with regard to the offshore funds may be out of date or simply wrong!
I personally have seen hundreds of opinion letters written by professionals who live abroad which are worthless, or which are years out of date or which are simply wrong. Added to this there are numerous cases where the advice given was correct but simply not followed to the letter – again a serious error now that all sensitive private information is available for tax inspectors, across the globe, to see.
Reliance on advice which is out of date or wrong is no defence to the non-payment of tax or the imposition of 100% minimum tax penalties.
Then the taxpayer can be excused for thinking that his personal private information held by his Swiss banker is protected – it is not.
Although Filipo Noseda partner of Mishcon de Reya and Podcast Professional member of Carolines Club is trying to establish that the exchange of information under the CRS is illegal as being in breach of the EU’s General Data Protection Regulations and has been successful in front of the European Court of Justice – it has not stopped Governments across the world from continuing to exchange this personal and private information.
So, what should you or a client in receipt of a ‘nudge’ letter from HMRC do?
The first rule is to TAKE IT SERIOUSLY AND ACT ON IT IMMEDIATELY–seek advice – from a lawyer such as Garnham Family Office Services.
Remember only correspondence with a lawyer is privileged and need not be disclosed – and remember if you hesitate in seeking a second legal opinion on the grounds that it will be expensive – the cost of advice will be nothing when compared to fighting HMRC, paying tax, plus up to 200% in penalties.