Offshore Client Notifications – Are you Affected?

We have written previously on this blog about various HMRC offshore disclosure facilities designed to encourage taxpayers to come forward and declare any unreported foreign income or gains.

HMRC continue to acquire new powers in order to pursue taxpayers and one of the latest requires advisors themselves to write to certain clients on their behalf.

These rules apply to financial institutions like banks but also to so-called “specified relevant persons” (SRPs). Accountants and tax advisors are likely to be an SRP if they provided offshore advice or services over and above simple preparation and delivery of tax returns in the year to 30 September 2016 regarding a client’s personal tax affairs.

If the advisors fall within the rules and are not covered by certain exemptions they will be required to send a standard HMRC headed document to these clients (although writing to all clients is also permitted) with a covering letter that includes certain wording which may not be altered (these are the Offshore Client Notifications).

One of the key things to note is that HMRC’s document directs clients to submit their own online disclosure. You may suspect they are thus attempting to bypass the advisors. We could not possibly comment! If you need to send such letters, we recommend highlighting to the client the dangers of doing so!

The wording SRPs must include in their covering letter is as follows:

“From 2016, HM Revenue & Customs (HMRC) is getting an unprecedented amount of information about people’s overseas accounts, structures, trusts, and investments from more than 100 jurisdictions worldwide, thanks to agreements to increase global tax transparency. This gives HMRC unprecedented levels of information to check that, as in most cases, the right tax has been paid.

If you have already declared all of your past and present income or gains to HMRC, including from overseas, you do not need to worry. But if you are in any doubt, HMRC recommends that you read the factsheet attached to help you decide now what to do next.”

If you are concerned about how these rules might affect your firm, or are an individual with unreported overseas income, please get in contact with us as we would be happy to assist.

Worldwide Disclosure Facility – Last Chance to Disclose?

HMRC have announced the Worldwide Disclosure Facility (WDF) the latest in a long line of disclosure facilities designed to encourage taxpayers to come forward to disclose previously unreported offshore tax liabilities.

Unlike its predecessors, the WDF does not offer any favourable terms, other than the fact that HMRC state that where the disclosure is correct and complete and the taxpayer fully co-operates by supplying any further information they ask for to check the disclosure, they’ll not seek to impose a ‘higher penalty’, except in specific circumstances (e.g. where the taxpayer was already under enquiry) and they will also agree not to publish details of the disclosure. This last ‘benefit’ may appeal to higher profile individuals who may prefer to remain anonymous in their previous failures.

This is a marked difference to previous disclosure facilities that offered much reduced penalties (such as the 10% rate offered by the Liechtenstein Disclosure Facility) and guarantees against prosecution.

The WDF is targeted as a ‘last chance’ by HMRC before even more strict penalties come into force, as well as their claims that automatic exchange and data from the Organisation for Economic Co-operation and Development Common Reporting Standard (CRS) will then be available.

After 30 September 2018, new sanctions will be introduced that reflect HMRC’s “toughening approach”. They state that you will still be able to make a disclosure after that date “but those new terms will not be as good as those currently available”.

Previous experiences suggest that making a disclosure under one of HMRC’s facilities is usually a more streamlined process compared to simply writing to HMRC.

Eaves and Co would be very happy to discuss matters if you are concerned that you or your clients may have an undisclosed offshore liability, suitable for the Worldwide Disclosure Facility. We have extensive experience of making disclosures under previous facilities that HMRC have offered.

Farce: Manchester United and HM Treasury

Hello,

1)      Sorry for the informality of the greeting but if you were doing a training exercise on fake bombs and security, would you not (at least) count up the number of imitations you had hidden – and then count them back in to avoid scaring/annoying 75,000 people?  See Manchester United and fake security issue?

2)      Secondly, if you were trying to convey ‘good news’ about the ‘initiative to automatically exchange information on beneficial ownership’ (See HM Treasury Press Release), there may be ‘marginal’ concern about the absence of countries [on HM Treasury List dated 13 May 2016] such as China, Russia and the USA (for example)

3)      Thirdly, by definition, dishonest people are going to tell lies, especially if they can get away with it.  Hence, how (for example) is a relatively poor country (say the UK (?)) going to enforce disclosure?

Offshore Update – HMRC Clamp Down and Starbucks EU Tax Case

HMRC have recently purchased advertising pointing out that offshore income and gains may be taxable in the UK. This is true. In general, for UK domiciled residents, all worldwide income and gains are taxable (even where you reinvested the proceeds and did not remit them to the UK). For non-residents, UK source income may be taxable.

This is where it gets complicated (as if it was not before!). Like many other matters in the international tax world, circumstances can alter cases . Domicile, double tax treaties and all the new statutory residence test may all have an impact.

If you have offshore assets, review them now, before HMRC really clamp down next tax year. If in doubt, seek tax expert advice.

In an interesting twist to the European Question, the EU authorities have just issued a decision on the advance tax ruling given to Starbucks by the Dutch Revenue, helping Starbucks avoid tax in other jurisdictions. This was done by Starbucks having higher tax deductible costs with a lower tax rate in the Netherlands, thus meaning there was only immaterial profit in countries such as the UK, so minimal UK corporation tax. The EU Authorities feel this amounted to illegal State Aid, such that Starbucks should be enforced to repay it in full.

The political question is whether this is:

a) A good example to tax abuse by multinational corporations?

b) An unacceptable interference in Dutch sovereignty because tax is not supposed to be controlled at EU level?

Is that the smell of coffee or the protagonists’ lawyer preparing their morning shot of napalm?

Net Closing In as Guernsey and Jersey Sign Automatic Information Exchange Agreements

Guernsey and Jersey signed Automatic Information Exchange Agreements with the UK on the 22 October 2013 – the ‘UK-Guernsey Agreement to Improve International Tax Compliance’ and the ‘UK-Jersey Agreement to Improve International Tax Compliance’.  This means transparency between the tax authorities will be higher, and taxpayers trying to hide funds offshore will find that details are sent to HMRC.

The new agreements mean that all the Crown Dependencies have now entered into automatic tax information exchange agreements with the UK, with the Isle of Man having signed on 10 October 2013.

The net is closing in on taxpayers trying to evade tax, but for those wanting to come forward, beneficial disclosure regimes are still in operation in the Isle of Man, Guernsey and Jersey, as well as the on-going Liechtenstein Disclosure Facility.

Eaves and Co have assisted a number of clients with making disclosures of offshore income to HMRC and would be happy to hear from anyone wishing to come forward under these schemes.

UK Swiss Confederation Taxation Cooperation Agreement – Update

UPDATE: Please see Eaves and Co’s Swiss Treaty Brochure for full details of the treaty

As the timeframe moves closer for the UK Swiss Treaty to come into operation (1 January 2013) there have been some further changes to its terms.

On 18 April 2012 the UK and Switzerland exchanged letters with the outcome being that the minimum rate payable on capital through the treaty has been raised to 21%.  The upper rate also being raised and to 41%.

switzerland

Switzerland (Photo credit: siette)

Clearly this makes the UK Swiss Treaty even less palatable, with some commentators saying that only people wishing to remain anonymous should suffer the levy.  However, an initial professional consultation for anybody considering the matter remains a necessity in considering the alternative routes to redress of their tax position.

Uk-Swiss Tax Treaty: An Overview

UPDATE: Please see Eaves and Co’s Swiss Treaty Brochure for full details of the treaty

The UK and Swiss governments have now signed the long awaited UK-Swiss Confederation Taxation Cooperation Agreement. The new treaty still has to be ratified before coming into effect, but is expected to be fully effective from 1 January 2013.

The treaty will generally apply to UK taxpayers who held a Swiss account as of 31 December 2010 and where the account remains open as of 31 May 2013. Non-UK domiciliaries will have to prove, by way of a certification by a lawyer or tax agent that they have claimed the remittance basis of taxation for the year in question, and give notice to opt-out of the agreement. Under the terms of the agreement, UK taxpayers may either:

1) Retain anonymity and suffer an initial one off deduction of between 21-41%, or

 2) Make a voluntary disclosure to HMRC regarding their Swiss assets and income.

Option 1

There will be an initial one-off deduction, in order to settle past tax liabilities, of between 21% and 41% applied to the balance of a UK resident’s existing Swiss accounts as of 31 December 2010.

The rate charged depends upon the number of years of investment and the account movement. It is estimated that the applicable rate will be 22-28% for most taxpayers.

 In addition to this from 2013 there will be a withholding tax of 48% on interest income, 27% on Capital Gains, and 40% on dividends.

Taxpayers who pay the levy and withholding tax will be able to retain anonymity (subject to EU approval).

Option 2

Alternatively the taxpayer can make a full disclosure of untaxed Swiss income and gains to HMRC. HMRC will then seek unpaid taxes, interest and penalties from this disclosure.

If a disclosure is made, the taxpayer’s accounts will not be subject to the one off charge and future withholding tax. However the taxpayer must inform their banks that they have chosen to disclose otherwise the one-off levy will be automatically applied.

 What to do now

 It is likely that UK persons with undisclosed Swiss income will need to contemplate whether to make a disclosure or pay the one off levy and suffer the withholding tax moving forwards.

Disclose

There is no specific disclosure facility contained within the Treaty, so HMRC will levy penalties at normal rates on any liabilities disclosed. HMRC can assess such tax liabilities for up to twenty years so the total cost of tax, interest and penalties could be very high.

A more generous disclosure opportunity is available using the Liechtenstein Disclosure Facility (LDF). The LDF provides certainty of settling past worldwide tax issues, with liabilities being limited to those arising after April 1999, and with a set 10% penalty rate for years up to 5 April 2009. More importantly, the LDF provides immunity from prosecution.

Pay the Levy and Withholding Tax

The one off charge is levied on the value of Swiss funds as of 31 December 2010 and therefore only clears tax liabilities associated with those funds and therefore does not guarantee that all past Swiss liabilities will be settled.

 As a result it does not offer immunity from prosecution but does however ensure that anonymity is retained.

Move Assets to another Jurisdiction

It is possible to move assets to another jurisdiction before the 31 May 2013 to avoid the regime; however Swiss banks will be providing information to HMRC on the top ten destinations where funds are being moved. If the taxpayer is subsequently caught they will be liable for tax due going back to 20 years, penalties of up to 200%, public ‘naming and shaming’ and the risk of prosecution.

How Eaves & Co Can Help

Based on the LDF’s that Eaves & Co have already made for clients, the average cost is around 17% of the account value at the time of the disclosure. This is less than the 21%-41% levied under the Swiss Tax Treaty; however each case will need to be judged on its own merits.

In order to establish the best option for the individual involved it would be useful to undertake a technical review to compare the net costs of both options. Eaves & Co would be happy to have a no names discussion (so as not to contravene the money laundering rules) to discuss the options available in more detail to anyone feels they may be affected.