HMRC latest ‘nudge’ letter campaign: offshore corporates owning UK property

HMRC letters

Of the two letters, one will be issued to offshore corporates owning UK property where income may have been received as a non-resident landlord or the Annual Tax on Enveloped Dwellings (ATED) may apply. Even though the letter will be addressed to a corporate entity, HMRC are recommending connected UK resident individuals to review their personal tax affairs and ensure they are up to date.  Emphasis is being made to the Transfer of Assets Abroad (ToAA) legislation and professional advice should be sought.

The second letter will be issued to offshore corporates that appear to have disposed of UK residential property between 6 April 2015 and 5 April 2019 without filing a non-resident Capital Gains Tax return. Once again, HMRC are recommending that connected UK resident individuals review their personal tax affairs to ensure they are up to date.

Action

You do not need to await an HMRC communication; if a disclosure is required, we recommend you approach HMRC before they approach you. Such action will allow greater mitigation of any potential charges.

It is important to remember a nudge letter is not a statutory enquiry into a taxpayer’s affairs, however these letters should not be ignored and appropriate action must be taken. This does not mean signing and sending the requested certificate to HMRC. If HMRC subsequently opens an enquiry and finds an error, failure to take action following receipt of a nudge letter could lead to higher penalties being charged.

A professional tax advisor can guide a taxpayer through the disclosure process and advise, where applicable, the penalty mitigation available. We recommend taxpayers immediately seek professional advice following receipt of a nudge letter, statutory enquiry, or where a taxpayer has found a mistake in their filings to HMRC.

At haysmacintyre we have a wealth of experience in making successful disclosures to HMRC. We have a proven track record in obtaining the most favourable result for clients, allowing them to draw a line under the matter and move forward without further intrusion from HMRC.

Should you require professional advice please contact Danielle Ford, Head of Tax Disputes and Resolutions.

HMRC ‘nudge’ letters targeting taxpayers with Euro Pacific Bank accounts

HMRC has confirmed they are investigating UK taxpayers believed to have held or controlled accounts with Euro Pacific Bank.

Following the Joint Chiefs of Global Tax Enforcement’s two-year investigation into suspected tax evasion and money laundering involving clients of the bank globally, the Puerto Rico Office of the Commissioner of Financial Institutions (OCIF) has issued a Cease and Desist Order against Euro Pacific Bank (EPB), preventing it from carrying out any further business.

HMRC believe there are hundreds of individuals in the UK who have used EPB’s services and products to evade tax, resulting in the HMRC Fraud Investigation Service launching a series of tax enquiries, full criminal investigations and intelligence operations with many more to come.

Letters are to be sent to identified UK taxpayers, encouraging them to review their tax affairs. Should updates to their tax affairs be necessary they should use the Worldwide Disclosure Facility (WDF). However, owing to the nature of HMRC’s enquiries, WDF may not be the most suitable method of disclosure to HMRC – fraud could be suspected. An alternative method is the Contractual Disclosure Facility (CDF) under Code of Practice 9 (COP9) to offer protection from Criminal Prosecution for those issues disclosed.

HMRC have sent a clear message: they can and will take action against taxpayers and the financial institutions that facilitate tax evasion.

Disclosures and penalties 

If a taxpayer finds a mistake in their filings to HMRC, disclosing the error or omission before HMRC send a letter or open an enquiry will lead to the most favourable outcome. Following receipt of a nudge letter, a disclosure to HMRC will be treated as ‘prompted’ for penalty purposes. Prompted penalty rates are higher than those that apply to unprompted penalties. For example, the maximum prompted penalty for an offshore omission is 200%. In addition, a further penalty of 50% of the tax could be levied for an ‘asset move’. This is where assets are considered to have been moved from the UK or other jurisdictions, to avoid UK tax or to disguise non-compliance with UK tax legislation, and HMRC are very likely to consider using this power in cases involving EPB.

Completely voluntary disclosures to HMRC benefit from the lowest possible penalty range for the type of error, and broadly the length of time interacting with HMRC will be significantly shorter, as compared to a full investigation.

A professional tax advisor can guide a taxpayer through the disclosure process and advise, where applicable, the penalty mitigation available. We recommend taxpayers immediately seek professional advice following receipt of an HMRC nudge letter, statutory enquiry or where a taxpayer has found a mistake in their filings to HMRC.

At haysmacintyre we have a wealth of experience in making successful disclosures to HMRC under the CDF and  WDF. We have a proven track record in obtaining the most favourable result for clients, allowing them to draw a line under the matter and move forward without further intrusion from HMRC.

We are here to help, should you require more information or professional advice please contact a member of our Tax Disputes and Resolutions team.

Getting tough on share sales – latest HMRC action incoming

The Chartered Institute of Taxation (CIOT) have published details of an HMRC briefing stating that they have undertaken a project reviewing declared proceeds from share sales in 2019/20 Self-Assessment tax returns, against the values declared by purchasing companies. This is seen as an area of tax risk by HMRC, and they have the information available to investigate and challenge the declared values of share sale proceeds.

HMRC will be sending ‘nudge letters’ to those where a discrepancy is identified, as part of its one-to-many strategy. HMRC receives data from a vast number of sources and believe that the use of nudge letters provides it with a cost-effective approach to communicate with many taxpayers.

Nudge letters are a targeted communication from HMRC to a large group of taxpayers. HMRC’s nudge letters to date have either identified a potential loss of tax or, more broadly, are used as an educational exercise.

It is worth noting that representatives do not always receive a copy of these communications from HMRC. The communications are aimed at encouraging taxpayers to review their own tax affairs and voluntarily correct any errors or omissions. Our experience has shown that there can be inaccuracies with some of the information held by HMRC, or it has been interpreted incorrectly.

This latest HMRC nudge letter will contain an invitation to make a disclosure for those who agree that the tax return contains an inaccuracy, or a written response from those who are happy the information in their tax return is correct. Caution is advised here: if an error is found later, HMRC may use the written confirmation as evidence of deliberate or fraudulent behaviour in penalty negotiations.

HMRC is expected to take further action against those who do not respond, which may include discovery assessments or other compliance action, and could carry higher penalties.

We recommend reviewing declared share sales in 2019/20 and seeking professional advice should there be a discrepancy. A voluntary unprompted disclosure, ahead of the receipt of any letter, would benefit from the lowest available penalties. We expect HMRC to undertake similar projects in tax years going forward.

Should you require any professional advice please contact our head of tax disputes and resolutions, Danielle Ford.

The full publication can be found here.

Major Sporting Events (Income Tax Exemption) Regulations 2022 for summer

1. Finalissima football match – SI 2022/487

The Finalissima football match between Italy and Argentina is due to be held at Wembley Stadium on 1 June 2022.

SI 2022/487 will come into force on 27 May 2022. The Income Tax Exemption will be available from 28 May 2022 until 2 June 2022 and only applies to individuals within the meaning of an accredited person. The individuals must be non-UK resident in the 2022/23 tax year or, if split year treatment applies, the income must relate to the overseas part of the tax year.

2. UEFA Women’s EURO 2022 finals – SI 2022/489

The UEFA Women’s Euro 2022 finals tournament is due to be held in England in July 2022.

SI 2022/489 will come into force on 30 June 2022. The Income Tax Exemption is available from 1 July 2022 until 6 August 2022 and only applies to individuals within the meaning of an accredited person. The individuals must be non-UK resident in the 2022/23 tax year or, if split year treatment applies, the income must relate to the overseas part of the tax year.

3. Birmingham Commonwealth Games – SI 2022/493

The Birmingham Commonwealth Games will take place from 28 July 2022 to 8 August 2022.

SI 2022/493 will come into force on 30 June 2022. The Income Tax Exemption is available from 1 July 2022 to 11 August 2022 and applies to duties or services in connection with the Birmingham Commonwealth Games which are performed by an accredited person in the UK during this period. The individual must be a non-UK resident in the 2022/23 tax year or, if split year treatment applies, the income must relate to the overseas part of the tax year.

If you require further information, please contact Danielle Ford, Director and Head of Tax Disputes & Resolutions.

Penalties for facilitating avoidance schemes involving non-resident promoters

Following our Tax Disputes and Resolutions team’s recent article in Taxation ‘HMRC’s power to publish information about avoidance schemes’ Finance Act 2022, s 86 (read the full article here), HMRC has published guidance on penalties for facilitating avoidance schemes involving non-resident promoters, Finance Act 2022, s 91 schedule 13.  The legislation introduces a new penalty that is to be applied to UK entities who facilitate tax avoidance schemes involving non-resident promoters.

The penalty will be up to 100% of the total fees or equivalent thereon received by all entities involved in the promotion of the avoidance scheme

This is part of HMRC’s wider focus on clamping down on promoters.

Tackling tax avoidance schemes involving offshore promoters has proved a challenge for HMRC.  The new penalty is a positive step to tackle non-resident promoters of tax avoidance schemes.

The new penalty together with POTAS and Enablers penalties and the publication of information to identify promoters will act as a greater deterrent to UK entities from promoting such schemes.

For more information, please do not hesitate to contact Danielle Ford, Head of Tax Disputes and Resolutions.

HMRC settlement opportunity – Remuneration Trust Tax Avoidance Schemes

On 11 April 2022 HMRC announced a settlement opportunity for companies or individuals who have used certain tax avoidance schemes involving remuneration trusts. The settlement opportunity will be open for applications until 31 July 2022.

The settlement opportunity is available to individuals or companies only, whose scheme meets certain criteria detailed in the settlement publication. Individuals or companies under criminal investigation by HMRC are not eligible, and it may not apply if an appeal related to the tax consequences of a scheme has been referred to a tribunal, as a court may rule in the future that tax is due on an alternative basis and the settlement terms will be withdrawn.

Remuneration trusts do not just relate to employment remuneration; the structures include funds from companies and self-employed individuals. Due to the wide spectrum, each case is reviewed on the facts.

HMRC state “remuneration trust schemes do not work to deliver the ‘tax free’ environment they claim. Settling will give you certainty over your tax affairs regarding the arrangements and prevent further investigations”. HMRC have advised the settlement terms are likely to result in a lower tax bill for scheme users, than alternative outcomes that the courts might reach.

Reaching a settlement with HMRC will result in a legally binding full and final settlement. Whilst the settlement agreement will preclude HMRC from taking any future action against you, you will be unable to take any actions or make future claims in respect of this matter. Each case depends on the user and structure thereon, we recommend seeking professional advice before agreeing settlement with HMRC.

To apply for the settlement opportunity

HMRC require the taxpayer to:

  • Follow the settlement terms to decide which settlement basis applies
  • Prepare the tax calculations
  • Submit the completed calculations to HMRC before 31 July 2022

Should you decide not to settle by 31 July 2022

HMRC will continue to investigate and litigate against users of remuneration trust avoidance schemes. They have advised that users may find that it is more expensive to close any of your open enquiries formally than it is to settle under this opportunity.

Interest will continue to accrue on any outstanding tax liabilities until the liability is settled in full. HMRC charge late payment interest, set at 2.5% above the Bank of England base rate, currently 3.5%. Some tax avoidance schemes have been around for a number of years and the interest rates prior to 2009 were considerably higher than today.

Cashflow issues

HMRC will agree a Time To Pay (TTP) arrangement based on the taxpayer’s individual circumstances.

As with other settlement opportunities, HMRC have advised terms for individuals who do not have disposable assets and have income less than £50,000 in the year of settlement. Terms include:

  • Arrangements will be agreed for a minimum of five years for individuals who have income less than £50,000 in the year of settlement
  • For a minimum of seven years for individuals who earn less than £30,000 in the year of settlement.

HMRC will ask for income and expenditure information for those earning more than £50,000 or require longer than the minimum term to pay,.

Forward interest will be added for the duration of the TTP arrangement. Forward interest is charged at 1% above HMRC’s late payment interest rate and is to compensate HMRC for the extra risk in agreeing the extended payment period.

We are here to help

With an in-depth knowledge of tax avoidance schemes, we can guide you through the process in its entirety, including:

  • Understanding your structure
  • Outline what HMRC’s settlement opportunity means for you
  • Should you wish to settle, prepare and submit the settlement calculations to HMRC
  • Liaise with HMRC on your behalf
  • Discuss the funding of the settlement liability with you
  • Agree a payment plan with HMRC
  • Finalise your agreement with HMRC

For more information, please do not hesitate to contact Danielle Ford, Head of Tax Disputes and Resolutions.

Disputes with HMRC

We appreciate how daunting a dispute with HMRC may feel, with an individual or a company going against an entire government department, however we also appreciate HMRC make mistakes and the importance of defending your position, and the potential financial costs of not doing so.

Where such a dispute arises, our experienced team are best placed to assist.  We hold a detailed knowledge of HMRC’s powers, guidance and tax legislation, with a proven track record in successful arguments defending our clients’ positions.

Should a dispute need to be escalated to the next stage for any reason we can advise on the most effective way of doing so, communicate direct with HMRC and guide you with the process.

 

HMRC settlements

Settlements can cover a broad range of historic tax matters, most topical at the present time are those in respect of taxpayer investments which HMRC perceive to be tax avoidance schemes.  These include but not limited to film partnership structures, offshore structures, disguised remuneration – ‘contractor loans’, EBTs, umbrella companies.

HMRC are focussed on attacking such investments through their counter-avoidance department and legal action through the courts.  Such action is protracted, causing stress and worry for the taxpayers involved.

Settlement opportunities offer individuals an ‘out’ – a chance to enter into a mutual settlement with HMRC in order to provide finality.  Normally this is in exchange for payment of tax due plus late payment interest.

Our approach – we will review all of the available information to advise the best course of action, with regards to your personal circumstances.

 Our focus is you, we communicate direct with HMRC on your behalf and keep you fully to do date each step of the way.  We understand settling with HMRC will impact on cashflow, payment arrangements form part of the settlement process.

Disclosures

Settlements can cover a broad range of historic tax matters, most topical at the present time are those in respect of taxpayer investments which HMRC perceive to be tax avoidance schemes.  These include but not limited to film partnership structures, offshore structures, disguised remuneration – ‘contractor loans’, EBTs, umbrella companies.

HMRC are focussed on attacking such investments through their counter-avoidance department and legal action through the courts.  Such action is protracted, causing stress and worry for the taxpayers involved.

Settlement opportunities offer individuals an ‘out’ – a chance to enter into a mutual settlement with HMRC in order to provide finality.  Normally this is in exchange for payment of tax due plus late payment interest.

Our approach – we will review all of the available information to advise the best course of action, with regards to your personal circumstances.

Our focus is you, we communicate direct with HMRC on your behalf and keep you fully to do date each step of the way.  We understand settling with HMRC will impact on cashflow, payment arrangements form part of the settlement process.

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