The rhetoric from the corridors of power at HM Revenue and Customs (HMRC) appears to have been getting louder in recent times.
First came a period when the normal grey subject matter of tax and the various schemes available received more column inches than some of those who were advised to use them. Then came the revelations of the HSBC Swiss customer files and the decision by HMRC not to dig deeper, closely followed by the disclosure of the Panama Papers.
Something was needed to steady the ship and re-establish public confidence in a system that seemed to many to be imposing one rule for the rich and one rule for the poor. In these times of austerity, when both budgets and personnel were being reduced, change seems to have been achieved by redrawing the battle lines and increasing the scope of liability, with talk of more prosecutions and the introduction of new laws to target accountants and advisers.
This may have removed the heat of bad publicity and created the right political mood music but the jury is out as to whether it will make any difference to those advisers who deal on a daily basis with clients seeking tax planning to various degrees.
For those to whom they offer this advice, things may not change significantly. Despite the talk of further prosecutions, the ultimate purpose of HMRC is to make money available for public services.
The decision to start a criminal investigation or prosecute is made not with the main aim to recover taxes but instead to punish and deter others. This is extremely expensive and does not bring any guarantee of success. Even for those who are successfully prosecuted, the costs incurred by HMRC will normally far outweigh any monies that may be recovered months or years later.
It is for this reason there have only been 13 offshore specific prosecutions since 2009 with only about 30-40 prosecutions for tax evasion by corporate firms or HNWIs per year.
The preferred method of tax recovery will remain by civil settlement. Although the Leichtenstein Disclosure Facility is now closed, the more wide-ranging Worldwide Disclosure Facility has taken its place and there seems to be an increase in the use of other disclosure facilities such as the Contractual Disclosure Facility (CDF). These bring the benefits of a quicker resolution and better return to the HMRC purse. With HMRC from late last year being able to obtain more and more data from outside its jurisdiction, the use of such disclosure facilities will no doubt increase.
For the adviser, headlines such as ‘Threats to make the adviser liable to 100% of unpaid tax,’ seem concerning. But the majority of financial advisers will not touch this sort of work on a daily basis, if at all.
News source: City Wire