Amnesty » Tax Research UK

Tax investigations

Amnesty, Richard Murphy, Tax management 4 Responses »

May 172007

AccountingWEB has been a having a discussion of tax investigations. This is topical. The UK’s ‘tax amnesty’ will give rise to a fair number, either because the Revenue do not accept voluntary disclosures, or because people who choose not to disclose now will be forced to do so sometime soon.

It seems to me, based on my experience of doing investigation cases and of taking over such cases from other people that:

1) Many accountants do not know enough technically to do these cases
2) Most accountants don’t have the personality to do these cases
3) Most accountants don’t prepare their clients for these cases
4) Many accountants fail to do the legwork required to get a result in these cases
5) As a result they don’t make money from them.

My attitude is simple when doing an investigation. I want the right amount of tax (and interest and penalties) paid and no more. If the client owes, then they should pay. If the Revenue overstate the claim it’s my job to make sure that there is evidence to counter this.

This requires a robust approach with the client and Revenue, but both are based on offering full cooperation. The client has to cooperate with you. You have to cooperate with the revenue, and you expect the same in return.

The part most accountants won’t do is tell their clients what to expect when being investigated. Let’s put this simply. Being investigated by HMRC is for some people the worst experience of their adult lives. They’ve told me that. I believe them. The client has to know that in advance.

To mitigate this the accountant has to do two things. The first is thoroughly appraise the evidence to see where the holes are, what needs to be plugged and how, and all in advance. This takes time and experience. The second is to prepare the client. In my opinion anyone who takes a client into a meeting with the Revenue without having had one or two trial interviews with them in advance where the style of the Inspector’s questioning (which is predictable) has been practised is failing their client. The reason is simple. The accountant needs to know into what embarrassment they are being lead, and it’s much better for this to happen in a trial meeting than in the real thing. Second the client has to be shown how to answer questions. So they must be warned against exaggeration and false claims, or simply hasty answers. That can only happen in advance. And thirdly the accountant may find things out that need to be addressed before getting to see HMRC.

And when that moment arrives the accountant needs to be robust, including objecting to unfair questions when appropriate and being willing to intervene, ask for breaks, instructing the client of their right not to answer until facts have been determined, and so on.

I’ve been told by some accountants that this is not playing by the rules. That’s wrong. These are the rules if the objective is to pay the right tax. Better always for example to have the client say “I don’t know, but we’ll get back to you” than to make rash statements.

The trouble with this is that it takes some force of personality. And unless you’re willing to project that representing clients in this game is likely to be unrewarding in every sense.

Anyone facing an investigation needs to know their accountant will do these things.

There’s one other thing they should expect. A good accountant will expect to be paid upfront. Don’t argue. It’s you whose in trouble, not them.

PS I’m not seeking further investigation work at present.

The Banks spill the beans

Amnesty, Guernsey, Ireland, Isle of Man, Jersey, Tax management Comments Off

May 162007

Accountancy Age report that UK accountants PKF have seen evidence that the banks who have made disclosure of offshore bank accounts held by UK resident individuals have also made disclsoure of UK based offshore trusts and companies.

It has been believed until now that the orders issued against the banks excluded this information. However, since money laundering rules used by the banks to identify beneficial ownership will have been organised offshore along lines that do not reflect the difference between the legal structures an individual controls, it seems likely that some disclsoure will have been made on the basis of information held on beneficial ownership as defined for money laundering purposes and not tax purposes. In this case trust and offshore companies may well have been included in the sweep, maybe in error.

I have to say I am delighted by this. This information should be disclosed.

It also means that those with concern on this issue have even more reason to disclose.

And I can confirm that there are many people who have such concerns. This blog comes up first on Google on this issue – partly because of the very large number of people who have been reading what I have to say on the subject. My blog’s traffic has never been so good, and I’ll tel you that some who have called as a result are very worried indeed.

They’re right. They should be worried.

And now I’ll tell you my worry. It’s that the Revenue won’t be able to optimise its collection from this by having insufficient resources to follow all cases up. I’ve never known a worse time for the revenue to be shedding staff. It’s madness. And I hope it’s a policy that’s reversed as soon as possible.

Barclays regrets to advise

Amnesty, Barclays, Corruption, Ethics, Tax Havens Comments Off

May 092007

Barclays ‘Head of Wealth Operations’ has been writing to his customers….

To tell them that running an offshore bank account may not always have been such a bright idea after all

So much for ‘wealth operations’. I’m open to suggestions on other appropriate names……….

‘Tax amnesty’ – what ‘tax amnesty’? say the UK’s accountants

Amnesty, Tax management Comments Off

May 092007

The UK’s ‘tax amnesty’ is a big issue for a lot of people. I know because the blogs I’ve written on the issue continue to be very well read. I was therefore interested to read an article by a tax practitioner on AccountingWEB about the letter Barclays have finally sent out to their affected customers on the subject, and on the reaction of accountants in general to this issue. In summary his argument is:

1) Barclays has ‘blown the gaff’ on its customers
2) The ‘tax amnesty’ declaration period is too short
3) For many people if you haven’t acted already it’s now too late to do so
4) The other banks are negligent for not acting as fast as Barclays
5) Lots of accountants seem unaware of there being a ‘tax amnesty’ and have done nothing about it
6) Those that do know about it don’t seem to understand it
7) The Revenue will have to extend their declaration deadlines because of this combination of circumstances.

I’ve made a comment on AccountingWEB but I’ll make another here. It’s that this is the longest series of illogical complaints I’ve read for a long time, and entirely typical of the tax profession. To be clear:

1) Barclays had to disclose information to HMRC. Telling their clients is not necessary, but useful. I’m amused that the letter comes from their ‘Head of Wealth Operations’. It appears indicative of the greed that will have driven many into the crime of tax evasion.
2) The Revenue did not have to give a ‘tax amnesty’. To moan that it’s too short is absurd.
3) I acted on this issue immediately I knew of it, and told all my clients about it. That was to ensure that people did have the opportunity to react if they needed to. Others could still follow that advice.
4) All the banks are negligent on this issue. They sold products that put people at risk and did not tell them what they had to do to ensure their operation was legal. Picking out some banks for criticism now is like the proverbial closing of the door after the horse has bolted.
5) Those accountants who do not know of this issue do not deserve to be in practice, Worse, they are actually a menace to those who do know.
6) There’s no excuse for not understanding this issue. The Revenue web site is a good starting point, and is well written.
7) I can’t see the Revenue extending their deadline. Why should they? Those who don’t declare are still known to them. The amount of penalties paid will simply go up over time.

The AccountingWEB author has therefore wasted his time and effort in writing as he has.

What he should have said, and I’ll reiterate it, is this:

a) Any accountant has now to familiarise themselves with this issue;
b) All accountants should write to all their clients about this. From the amount of traffic my site is getting I can tell you there are a lot of people looking for help out there.
c) An accountant who can’t manage the resulting workload has to issue strict deadlines to clients to avoid liability passing to them on this issue.

And if an accountant can’t do this, what use are they to a client? The reality is that practitioners do have duties. One is to be up to date. A second is to advise their clients. A third is to make sure as far as they can that the right amount of tax is paid in the right place at the right time. That’s what tax compliance is. And it’s possible. Anything else is just an excuse. Which is what AccountingWEB published.

I’ve paid my tax – does the ‘tax amnesty’ affect me?

Amnesty 1 Response »

Apr 262007

A question has been posted on this site. It asks:

I am puzzled by this so called offshore tax amnesty. I have for many years had an offshore savings account as a consequence of working overseas. But I have always declared interest for tax while resident and working in the UK. Yet the impression I am getting is that anyone holding an offshore account, interest declared or not, will be targeted or investigated if they do not “come forward”. And as a matter of interest, just exactly what information has my bank been forced to disclose to HMRC?

Because the issue is perhaps of more general concern I’ve chosen to answer here, and not as a response that few will read.

There is nothing illegal about a UK resident person holding an offshore account if, assuming they are domiciled in the UK and that seems likely from what you say, the interest is declared in the UK and all UK due tax is paid;
Since it seems you have done this in theory you have no reason to make a declaration at this time;
However, under the powers afforded to them under section 20 Taxes Management Act 1970 and under the EU Savings Tax Directive HMRC have now obtained information for the first time on accounts held in the Crown Dependencies by people who have addresses in the UK. I would stress that there is nothing sinister in this, and in my opinion the word ‘force’ should not come into debate. The same banks supply details of all interest paid by them in the UK to UK resident people to HMRC every year and have done so for as long as I can recall. All that has been created is a level playing field;
The difference is, however, that most people with accounts in the UK are either a) basic rate tax payers for whom no additional tax is due on the account or b) tax compliant taxpayers where the additional liability they might owe at higher rate has been declared. It is an unfortunate fact that considerable numbers holding offshore accounts do not fall into this category. My evidence is that at least 70% of those with accounts in the Crown Dependencies asked for information on them not to be disclosed to HMRC under the EU Savings Directive. Candidly the only reason for that is a desire to evade tax unless (as is true for at most 70,000 declared people in the UK) they are not domiciled in the UK but are resident here and do not need to disclose.
The result is that the Revenue are now aware of hundreds of thousands of accounts for the first time, many of which will give rise to tax liability in the UK. The Revenue don’t have the resource to filter all this information so they’re asking people to voluntarily declare their liabilities instead. I suspect that for at least 95% of those who do declare under the new disclsoure scheme any declaration now will be accepted by HMRC in full settlement of tax owing and that will be that.
In your case you have no reason to make a declaration: you have paid your tax. So in theory you can ignore this.
In practice I would not ignore this. But nor would I declare anything. I’d simply suggest that you write a letter to your tax office and say that you do have an account with XYX Bank in Jersey / Guernsey / Isle of Man with account number XXX and that you have always declared interest in full on the account on your tax return and that you have nothing more to pay now if you are entirely sure that is the case. That way you simply seek to prevent an enquiry arising later. It’s not necessary, but I think it would help.

As I noted at the outset, it seems you’ve done nothing wrong. But the simple fact is that despite the claims made by Jersey, Guernsey and the Isle of Man that they don’t want illegal funds associated with tax evasion in the Crown dependencies it seems likely that they’ve been awash in them, and this has resulted in the mildly unfortunate (but no more) consequences for the enquirer.

There’s more to the data the Revenue have got

Amnesty, Tax management Comments Off

Apr 252007

It’s been widely assumed that the data the Revenue is using as the basis of checking declarations under the UK ‘tax amnesty’ is that supplied to them by the leading five UK banks, secured under what are called s20 notices, i.e. against their will.

Well placed sources, whose information I have no reason to doubt, tell me that’s not entirely true. Some is from routine information supplied to HMRC under information exchange arrangements under the EU Savings Directive. Now that opens up a whole new ball park:

1) This means many more territories are involved, both onshore and offshore

2) By no means all those on whom the Revenue are holding data will in that case be getting letters from High Street banks to tell them that the Revenue have information on them.

My suspicion is that there are a great many people who have accounts in other EU countries where tax might even have been paid at source but where, for example, higher rate liabilities have been omitted from UK tax returns who might also need to think about checking past data. Remember, in most cases data is now being automatically exchanged between EU countries.

Oh, and just for fun, some of the information supplied has, apparently, nothing to do with taxable information as such, but is credit card data, holders of which may also not get a letter from a bank.

In that case, as my source and I agreed, all things considered it looks like the Revenue’s tax take on this is going to be much higher than has been publicly suggested.

Dithering accountants

Accounting, Amnesty, Richard Murphy 1 Response »

Apr 252007

It may have occurred to one or two readers of this blog that the accusation has occasionally been made that I am opinionated. Too true I am, especially when it comes to accountancy practice. In fact, I’m of the opinion that an accountancy practitioner has to be very opinionated indeed. The reason is simple. That’s exactly what the client wants.

Now I’m not making a trite point here. I’m actually getting to the very heart of my business philosophy as an accountancy practitioner. To explain I will go back a long way. I was trained in tax by Peat Marwick Mitchell & Co (now KPMG) London. I was in what was, in large part, a consultancy department and I was taught a particular way to write letters. This basically required you to send a letter to a client offering at least three options they might choose on any issue and by the merest of hints of inflection of grammatical style suggest that they might wish to choose (b) without ever being so explicit that the firm might accept liability for what was said. In exchange for this obfuscation considerable fees were charged.

I hated that style of working. I believed the accountant failed in their professional duty in that situation. Put simply they did not profess. That’s not good enough. And charging considerable sums for this failure to advise stuck in my gullet. It was one of the many reasons why I decided to quit. When, soon after, I decided to set up on my own at an age I’d now consider reckless I was determined to do things a lot better. Put simply I wanted to use my intellect to offer unambiguous advice on which a client could act with confidence, and I’d accept the consequences.

I can assure you, clients liked it. The firm grew fast, so fast we (for it soon became a partnership) decided to concentrate on quality not quantity as time went by, but there were still 800 clients when we all moved on 15 years after I started the operation. And most were successful. I genuinely think we could claim some credit for that because the emphatic nature of the advice we gave provided people with confidence on issues on which they felt sufficiently insecure to pay for help.

So it’s annoyed me considerably to see the ‘great and good’ sitting on their hands with regard to the UK’s ‘tax amnesty’. In comments I’ve received about the advice for practitioners I published a couple of days ago I have, for example, been accused of ‘rushing in’ when delay could be tolerated, and of being emphatic when it is uncertain just how this disclosure scheme will pan out.

Well, I’ll be unambiguous about those comments. I think they represent a dereliction of duty by those responsible for them to their clients who do at this time need advice, because contrary to the bleatings of the profession the vast majority of those who will need to know about the disclosure scheme probably do so already from the press, or will when their bank writes to them in the near future. In that case they need advice now. So why have the Institutes suggested accountants abandon their responsibility their duty to their clients at this moment? I’ll be straightforward. I think it’s because:

a) They have no sense of duty to their clients. Sorry, I think that’s true. I certainly think I have a duty to my profession, myself and society at large before any one client, but that still means I have an enormous responsibility to those who help provide me with a livelihood. But those who think they put profit first put clients second, always. That’s not being professional. They’re dithering now because they see risk in this and that they identify that with harm to profit and as such they’re not talking to clients. That’s wrong.

b) They’re cowards. What else can such running away from both risk and uncertainty represent? The two are, of course, different but both are part of the realities of life, and are always present when supplying client service. So, you embrace them and advise on the basis of best judgement in the face of that reality. That, after all is exactly what to be a professional person requires, and is exactly what the client expects. Clients know there’s no such thing as certainty. It’s only accountants who appear to retain this quaint notion that as a result debilitates the profession and leaves it in this amazing situation where all it can do is complain. Until accountants embrace uncertainty this will continue to be the case.

c) They have no moral compass on which to base their advice and as such are clueless as to what to say to help people. That’s a big charge, but I think it’s true. Put simply, if your only goal is to help a client save tax then you’re living a grey area where there is no guide bar a profit motive matched by an even greater fear of client litigation. But if, alternatively you have the clear objective to ensure a client complies with tax law and so pays the right amount of tax and no more in the right place at the right time then you’ve got a framework on which to offer advice, which the client can understand (and appreciate, because they know it means they can sleep at night, at least when it comes to this issue) and which provides an unambiguous basis for decision making.

So where it appears others are dithering I’ve acted. Nothing I’ve said has exposed me to risk. All that I’ve done so far is:

- be timely, which is an enormous commercial differentiator in the eyes of the client, which they value greatly;

- shown clients I’m on the ball;

- reassured them I can meet their need, if there is one, if only by referring them on in some cases;

- given myself more time to deal with any issues, if thy do arise (although, I’ll be honest, I’m not expecting that outcome).

I call that professional. I call it creating competitive advantage. I call it client service. And I think most clients would think their own accountants are dithering. As exam questions used to say in my day: compare and contrast. I know what the punter would prefer.

What practitioners should do next

Amnesty, Tax management 2 Responses »

Apr 242007

My blog on the letter I’ve sent to my clients on the ‘tax amnesty’ has proved popular. Actually, that’s a massive understatement, which simply proves the point I’ve made that what accountants want in situations like this is plain straightforward advice and help with practical issues, not someone arguing the legal points about what HMRC are up to.

So let me move on and say what I’ll do next if any client comes forward and tells me there might be issues that require declaration. These are:

1) I’ll make clear that once they’ve told me about any issue that will require declaration our relationship will change for good: I cannot undo what is said and I will require them to disclose if that is what I think necessary if our relationship is to continue. I’ll tell them this is my professional duty. I won’t, of course, mention money laundering issues, but I will seek to make clear the gravity of this issue before they open up;

2) If they do disclose issues that require declaration I will assure them that I will seek to help, but that if I am to do so four things follow on, and they have to respect them. These are:

a) This is a piece of work quite distinct from my normal engagement as their accountant. I will want to issue new terms of engagement for it and these will require:

i) That they pay up-front for all work;
ii) I will issue requests for payment at the start of each month as the matter progresses, and if they are not paid within 7 days work will stop;
iii) The charge rate for this work will be 50% above normal rates for other work to reflect the resources required to undertake it, the overtime I’ll effectively be working to fulfil my obligation to them with regard to it and the risk inherent in it.

They can either agree, or back out now (although I’m aware I’ll still have the money-laundering risk in that case);

b) They have to meet my time scales for supplying information or I cannot be liable for failing to meet deadlines. I’ve already indicated in the previous letter that the first deadline, for simply discussing disclosure, is 25 May. My deadline for getting information for the final disclosure deadline will be 1 September, which is the same near enough three month deadline that I use for accepting liability for late submission of tax returns. Let me be clear, I’ll be tough on this one and suggest anyone else is. The last thing you want is to be liable for penalties that increase on late disclosure under this scheme. I’ll also be emphatic that the supply of information means all information. Anything supplied after that date means my liability for penalties ends.

c) They have to meet me by mid-July to discuss how any potential tax and penalties will be funded. I think this very important and an essential part of the service. If payment cannot be made then the ‘amnesty’ won’t apply anyway and we’re looking at other options.

d) I’ll reserve the right to say I can’t do the work if it is clear that the information supplied shows that there is a risk of criminal prosecution arising from this matter which I do not have the experience to handle. It’s not I could not handle this: it’s a fact I don’t want to.

I know these might look tough – but let’s be clear, no one will be in the position of having issues to declare though my fault so I don’t care if I’m tough. And candidly, I’ll see anyone who needs help as a profit opportunity that can only be realised if they can pay me before HMRC get their hands on them, hence the payment terms.

3) I’ll want to record everything. And I mean ‘record’. In other words, unusually I’ll want client meetings on tape or electronic file to ensure I have fall-back evidence on what was said to me if it all goes wrong later and it transpires disclosure was incomplete. I’m going to make it clear, as I always do in investigation work, that it’s the client’s reputation that’s on the line, not mine.

I’ve done investigations over many years. As I often tell people when the process starts, by and large they’re less enjoyable than getting divorced or moving house three times in a year, and possibly both combined. In the current ‘amnesty’ anyone making disclosure has a good chance of avoiding all the stress of Revenue meetings and all that gores with it. That’s the real bonus they’ll get as this represents a massive saving in fee cost. But I’m still not letting them off lightly. It won’t benefit me or them to do so. They have a one off chance to get things straight, and I’ll see it as my job to make sure they do.

Help for the practitioner

Amnesty 2 Responses »

Apr 232007

I mentioned earlier today that I felt the combined tax institutes advice to their members on how to deal with HMRC’s ‘tax amnesty’ was ‘pathetic‘. In particular I thought the letter they suggested be sent a client missed the required target by a mile.

So, in a spirit of goodwill I’ll tell you this is what I’m sending my clients:

Dear X

I’m writing to you because my professional institute have advised me to do so. If this letter has no relevance to you, please accept my apologies.

As you may have seen in the press, HM Revenue & Customs announced a scheme last week that allows those who have held offshore bank accounts on which they have not declared interest earned for tax purposes to do so with significantly reduced penalties being due. Somewhat less publicity has been given to the fact that anyone who knows they have made an error on a past tax return which has resulted in less tax being paid than was really due can also make voluntary declaration of that fact at the moment and enjoy the same reduced penalty rate.

I would stress, if you believe that you’ve either correctly declared all interest you’ve ever earned on an offshore bank account for tax purposes or you have no other tax issues that you think should be declared now to set your tax record straight, you can safely ignore the rest of this letter and I’m sorry for troubling you.

If however you have had an offshore bank account on which you have not declared the interest or there are other tax issues you wish to declare and have not previously done so then the current ‘amnesty’ gives you an opportunity to do so relatively straightforwardly, with lower accounting costs being likely than normal and with a much lower rate of penalty being due on any unpaid tax at just 10% compared to 30% – 50% which is likely after the ‘amnesty’ is over. I should also add that if your offshore account was with Lloyds TSB, Barclays, HSBC, HBOS or RBS / Natwest then it’s highly likely that the Revenue already know about it, and they will pursue you if you don’t voluntarily declare the tax you owe now.

There are four further things to mention at this stage:

1. The ‘amnesty’ is only on tax penalties. All tax will still have to be paid, as will interest for the period during which it has been unpaid. If you have not declared any income quite serious overall liabilities might have arisen as a result;
2. You have until 22 June to tell HM Revenue & Customs that you want to take advantage of this disclosure regime and apply for the reduce rate of penalty. If you don’t tell them by then the lower rate of penalty will not apply. As such a decision has to be taken very soon;
3. If you have decided a disclosure needs to be made then you have until 26 November to provide all information the Revenue need to ensure that you have paid all tax, national insurance, VAT, interest and penalties due as a result of the previous error. If you do not make full declaration or pay in full by that date then the ‘amnesty’ does not apply;
4. It is expected that most voluntary declarations made under this scheme will be accepted without further enquiry being made. If, however, your disclosure suggests more serious tax issues have arisen or that another crime has taken place then the Revenue have given no undertaking not to pursue the matter further.

Put simply, these facts mean that time is of the essence because if there is a matter to declare then information has to be located for it over the entire period during which nondisclosure took place and then all the resulting consequences have to be calculated. This will take time, and may require quite a lot of work on your and our part. I would also add that we will need to agree separate terms for this work from those that we normally undertake for you.

I would stress that if you think this matter might be relevant to you then I would hope that you will now declare all income that should have been declared previously. If you do decide to do this I would also add that once I am aware of this need to make declaration that I could not then ignore that fact if, for example, having seen the calculations you decided you did not want to proceed with telling the Revenue. That is an option that the professional ethics and regulations of my profession do not allow. As such this is a serious matter.

In that case if you want to read about this issue before discussing it with me please do at HM Revenue & Customs’ web site relating to this matter at https://disclosures.hmrc.gov.uk/oaics/

As mentioned at the outset, if this letter does not relate to any issue about which you have concern, I am pleased and apologise for troubling you. If it is of concern to you, I assure you I will seek to help you to resolve this matter, but I stress again that time is of the essence and to ensure that the first deadline can be met I will need to hear from you by no later than 25 May if I am going to have the necessary time to help you decide how to proceed and meet the Revenue’s timescale for disclosure.

Yours sincerely