As the UK Swiss Tax treaty came into force on the 1 January 2013 the majority of UK residents with Swiss bank accounts should now have received correspondence from their Swiss bank informing of their options.

Strictly speaking the banks have until the 1 March 2013 to notify individuals that they have been identified as a ‘relevant person’ for the purpose of the UK Swiss treaty.

Under the terms of the treaty a ‘relevant person’ must make a notification of their intended option by 31 May 2013 to their bank, however from our experience banks have been requesting that individuals make their decision earlier.

A relevant person is broadly a UK resident who is the beneficial owner of a Swiss bank account or deposit.  For the purposes of the one-off charge of 21%-34% residency is determined as at 31 December 2010.

If an option has been selected and notified to the bank then it will become irrevocable as at 1 January 2013 therefore it is important the options are given due consideration before any action is taken.

Options Available 

A)     To retain anonymity but accept a one-off charge of 21%-34% plus withholding taxes on future income and gains received

 B)      Alternatively in order to avoid the one off levy and annual withholding taxes it is necessary that individuals either:

1)      Provide certification to the Swiss bank that you are a non UK domiciled taxpayer using the remittance basis, such that you are not subject to UK tax on your foreign income/gains (albeit that you may be subject to a remittance basis charge), or

2)      Make a voluntary disclosure to HM Revenue and Customs (possibly under the LDF) and either:

i)          Close your Swiss bank account , or

ii)       Authorise the Swiss bank to provide your details to HM Revenue and  Customs by signing a voluntary declaration.

 3)      Close the account and move the funds to another jurisdiction prior to 31 May 2013.

Note however that banks have agreed not to assist individuals in this process and will not, as far as we understand, re-book an existing UK customer’s account through, for example, their Hong Kong branch or subsidiary.

This is a high risk approach for the following reasons:

i)    Similar agreements may be signed with other jurisdictions in the future.

ii)     Significant resources are being channelled into tackling tax evasion; higher penalties, up to 200%, as well as a higher tax bill can be expected than if taxpayers make a voluntary disclosure or use the Swiss or Liechtenstein arrangement.

iii)      Criminal prosecution is a greater possibility

iv)       If HMRC make contact before the Swiss deal comes into force or a voluntary disclosure is made then the taxpayer will face an intrusive investigation into their affairs as well as the associated professional costs.

 How Eaves & Co Can Help

 If you have received a letter from a Swiss bank and would like to discuss which option is best for you, please get in touch for an initial consultation with Paul Davison on 0113 244 3502 or pdavison@eavesandco.co.uk.

The recent tribunal case of Seacourt Developments Limited v HMRC involved appeals against a number of determinations by HMRC in respect of PAYE, national insurance contributions (NICs) and Construction Industry Scheme (CIS) deductions.

Seacourt had previously stated that it only had seven employees via its P35 and no subcontractors were detailed in its CIS returns for 2005/06. In August 2008 the company’s new auditors submitted a revised schedule showing “workers” for 2005/06 as being 176, however no additional detail could be provided on their status as Seacourt did not provide it.

HMRC subsequently issued determinations for the 169 additional “workers” from 2005/06 -2007/08 on the advice of the company’s accountants (Seacourt failed to arrange a meeting with their accountants to discuss the issues). HMRC made an estimate as to which “workers” should have been dealt with under PAYE and CIS, with the total amount of PAYE and NIC due being £758,124.

In addition to the tax due HMRC also issued penalty notices. The maximum amount that could be charged was 100% of the tax due; however HMRC mitigated the penalty by reducing it by 10% for disclosure (max 20%), 20% for co-operation (max 40%) and 20% for seriousness (max 40%). The result being that the penalty was reduced to 50% of the tax due.

Seacourt appealed against the penalty but the judge ruled in HMRC’s favour. However, perhaps most surprisingly the tribunal ordered that the penalty be increased to 95% of the tax found to be due, bringing the total penalty to £720,217.80 (previously £379,060).

The penalty was increased on the basis that Seacourt had failed to co-operate and the offence was serious in nature, and therefore the discounts previously afforded by HMRC were removed. The tribunal also felt the disclosure was not of sufficient quality to warrant a 10% reduction and reduced it to 5%. As a result the maximum penalty was only reduced by 5%.

The overall outcome of the case is not surprising given the facts, however the fact that the tribunal ordered the penalty to be increased is. This could have an impact on HMRC’s penalty mitigation criteria in the future and also make taxpayers think twice before appealing an already reduced penalty.

Extra statutory concession A19 (ESC A19) is available to taxpayers in certain situations where tax has not been correctly collected under PAYE and as a result the taxpayer has underpaid tax.
Broadly speaking the taxpayer is not required to pay the outstanding tax liablility where it can be shown that sufficient time has passed and HMRC had ‘relevant’ information to determine that the additional tax was due.
In determining what constitutes ‘relevant’ information for the purposes of ESC A19, HMRC guidance states that the end of year reconcilliations submitted by employers for each employee in a tax year (known as form P14), do not constitute relevant information.
However a recent freedom of information request by Keith Gordon (a barrister from Atlas Chambers) has discovered that HMRC’s guidance prior to well publicised errors with it’s system, found that P14’s were treated as relevant information (ESCapology, Taxation Issue 4376).
Despite the current assertion that P14s are not relevant information, Eaves & Co were recently able to successfully argue that a P14 did constitute relevant information which resulted in our client successfully having ESC A19 applied.
From speaking to other advisors this success may however be a one off as HMRC seem to be denying P14s as relevant information in most instances where ESC A19 is being sought.
The consulation for the revision of the conditions of ESC A19 has now closed with Eaves & Co submitting a response, in particular making a point for P14s to be included as relevant information. However we will wait and see the outcomes of this consultation and provide an update in due course.

A private residence relief (PRR/PPR) case was recently heard by the first-tier tax tribunal.  The appellant, Mr Regan bought a house at the back of a club which was owned by a family company which he managed. The entertainment manager of the club also lived at the house.

In Christmas 1996, Mr Regan moved out of the property temporarily so that the entertainment manager’s wife’s family could stay.

At this time, Mr Regan and his new girlfriend (who later became his wife) spent most of their time at her flat.  Despite this, most of his belongings had remained at the house behind the club, which he also continued to use as his main postal address.

In 1998, Mr Regan and his girlfriend purchased a new house together and his parents purchased the house behind the club from him in 2000.

HMRC argued that private residence relief (PRR) was not available as Mr Regan had not been able to demonstrate sufficient permanence in his occupation of the property.  The tribunal found in favour of Mr Regan, stating that his occupation of his girlfriend’s flat did not have the required “settled quality” to detract from his occupation of the house. As he had moved out within 36 months of the sale of the property to his parents, relief was available.

With recent crackdowns on tax avoidance (highlighted by media coverage), and the introduction of a number of HMRC task forces, the spectre of tax investigations and enquiries is more apparent than ever.

Qualified tax advisors can help by giving advice on HMRC powers and procedures; disclosures, penalties and negotiating settlements when HMRC undertake investigation proceedings.

Such investigations can involve both business and individuals, including those involving potential allegations of serious fraud and Proceeds of Crime Act implications.

More commonly, HMRC will adopt a civil settlement approach, where experience in preparing relevant disclosure reports and negotiating settlements can be vital in ensuring that the taxpayer is able to settle the problem areas in as efficient and cost-effective manner as possible.

Serious investigations can be traumatic, exerting significant pressure on both business and family life. Having experienced advisors is an essential part of the objective of reaching a satisfactory settlement with as little drama as possible.

Technical Enquiries cover another aspect of possible dispute with HMRC.  They give the ideal opportunity to deal with potentially grey areas in the legislation, to ensure the client is defended robustly.

Despite the claimed ‘simplification’ of tax rules, the volume of tax legislation continues to increase. The 2012 Finance Bill was the largest ever, weighing in at 686 pages. With this ever-increasing pool of rules, it is inevitable that gaps in the intended legislation will occur.

Experience tax advisors are vital to ensure that the taxpayer’s position is represented fully in such situations. Eaves and Co are very experienced and specialise in providing advice on these sorts of tricky areas and would be delighted to hear from anyone with such concerns.

In the recent case of Mr Shakoor v HMRC, the appellant had failed to disclose the sale of two flats in July 2003 which resulted in significant capital gains. HMRC subsequently raised a discovery assessment for CGT of £49,014 plus a penalty of 70%.

The appellant contended the penalty on the basis that he had taken reasonable care by seeking advice from his accountant. He said the failure to disclose the gain was as a result of negligent advice from his accountant.

The accountant did advise that there was no CGT to pay, and that the disposal of the properties was not reportable on the tax return. However the accountant kept no notes of his advice but said he had relied upon two extra-statutory concessions relating to private residence relief. These clearly did not apply as the appellant had never resided in either property but the taxpayer asked for no explanation of this advice.

The Tribunal found that the taxpayer must have been aware that CGT was due on the properties, and it appeared to be “a case of shutting one’s eyes to what either was or ought reasonably have been seen as incorrect advice”.

The Tribunal did in fact cut the penalty to 30% giving the appellant the “benefit of the doubt” as a result of the poor advice given by his adviser. It observed that the appellant was content to “take a chance on the basis that his accountant had given him comfort, albeit in the rather dubious circumstances”

Under the new penalty regime, which covers the majority of taxes, there are minimum and maximum penalty levels prescribed under the legislation based upon the behaviour and quality of disclosure made by a taxpayer.

However many are unaware that HMRC have the discretion to reduce a penalty below the minimum percentage if the failure (resulting in a penalty) arises as a result of ‘special circumstances’.

HMRC guidance states that this means the circumstances have to be  “exceptional”. However a recent tax tribunal found that if this definition was used the results would be too restrictive.  The judge said  that special circumstances were more akin to “something out of the ordinary, something unknown” and therefore they did not necessarily have to be exceptional.

The effect of this  was that HMRC had not correctly considered whether “special circumstances” applied.  Upon considering the facts the tribunal found that ‘special circumstances’ did in fact apply and therefore the original penalty was reduced by 60%.

It will be interesting to see whether HMRC use their power of discretion to reduce a penalty more widely in light of this case.

Mr Sandford was a service engineer for Slush Puppie Limited (SPL).  From 2001 to March 2007 the individual had always considered himself to be self-employed and paid tax on that basis.

However; when his engagement ceased, the individual’s tax agents reviewed the situation and concluded that they believed he had been an employee of the company.

As a result they informed HMRC and sought a refund of self-assessment tax paid, suggesting SPL should be liable.

After a review of the facts HMRC accepted this view. They subsequently issued SPL with a notice that ruled Mr Sandford was an ‘employed earner’ and as result SPL were liable for income tax and Class 1 NICs.

SPL appealed.

The tribunal looked at several of the key indicators and found on balance Mr Sandford was self-employed.

Below are some of the key points which the tribunal felt indicated self-employment:

  • He was free to take on business from elsewhere and was able, having accepted a job, to find someone else to do it.
  • SPL’s supervision and control of his work was restricted to ensuring he complied with legal obligations
  • The use of a daily rate of pay was ‘a strong indicator’ that matters were based on a daily contract.  The fact that monthly invoices were raised for convenience did not alter this fact.
  • The lack of redundancy rights or other employment protection meant Mr Sandford shouldered financial risk.
  • The fact ‘that no substantial risks materialised in the course of five years is no indication that they did not exist potentially’.

The case does, however, highlight the importance of taking advice in this area as the company could have been liable for the tax due through PAYE should the tribunal have found that he was employed.