Amnesty » Tax Research UK

The Channel Island’s respond to the tax amnesty

Amnesty, Guernsey, Isle of Man, Jersey 3 Responses »

Apr 232007

It’s fascinating to read the response to the UK’s ‘tax amnesty’ in the Channel Islands. Remember, the information the Revenue have got on half a million or more accounts only comes from there and the Isle of Man, with Jersey having more cash than the others by some way on deposit with its banks.

Geoff Cook of Jersey Finance (and before that HSBC – the finance industry colonise such bodies) said in the Jersey Evening Post (who don’t put this stuff on the web):

My view is that it will probably not be as impactful (sic) as press speculation [suggests].

This he says is because a) only £60 billion of the deposits in Jersey are in sterling b) Jersey banks have been telling people in the UK that it’s not worth their while opening accounts there c) HSBC Jersey had clients in 207 countries, so the UK is not significant. Candidly Geoff, I don’t believe a word of those excuses, expect that I’m sure HSBC did have that spread of clients rather as I on average have readers of this blog in about 50 countries every day – even if only one or two in most of them.

For once KPMG were more open. Their tax director, Reg Day said:

Banks in particular are going to be inundated with requests from people in the UK about their historic arrangements.

Which is realistic. He also added:

If there were found to be irregularities there is then the question of whether offshore bank staff would be obliged to file reports with the relevant anti-money laundering authorities

I’m sure Reg is right. But more important is the fact that if he knows the banks are going to be inundated, why were no such reports (not one) filed last year by a bank in Jersey? Who has not been complying with the anti-money laundering rules to date? Or is it just that they’ve relied on the excuse put forward by Jane Stubbs, tax partner with PWC in Jersey, and an old sparring partner of mine when she said:

Technically the banks were not responsible for their customer’s tax affairs

Oh so true Jane, but I do notice your dependence upon that “technically”. I’d also remind you that the banks are solely responsible for their suspicions, and had a duty to report if they had any of those. But apparently none did. Which was simply an impossibility.

Jane did however follow up with this absurd comment:

Jersey has always said it did not want to be a place where people came to hide, and for us the UK is the mothership so we need a good and positive relationship.

In which case Jane please tell me why Jersey did not opt for automatic information exchange under the EU Savings Directive? You know it didn’t. You know that was done to assist secrecy. And so, to be honest, I find your comments incredible.

Meantime in Guernsey, Ernst & Young partner Graham Parrott has been commenting. He seems to join in the contempt that has been generally apparent from the higher echelons of the profession on this issue:

Quite how many people will be able, let alone willing, to come forward by the 22 June deadline is questionable, those who do being prompted by the stick, which accompanies this rather small carrot, of the Revenue’s ability to get details from some UK banks of off-shore accounts held by people in the UK. Last year it was Barclays, now Lloyds TSB, HSBC, HBOS and RBS, with possibly more to come.

More tellingly though he added:

The impact in Guernsey is likely to be limited as to the extent it means hidden income is declared – even if the money leaves the island, it is a move that should be embraced. The reality is that this is not business we want.

Which does not of course mean that the impact will be limited. But perhaps I’ll remind all at E & Y of this some day:

We should all pay what we owe – otherwise everyone else has to pay more.

It took a long time to get there, but finally I found a single comment from those who’ve talked about this in the Channel Islands which seemed credible.

The tax institues – making all the wrong choices on the ‘tax amnesty’

Amnesty, Tax management Comments Off

Apr 232007

I’ve already blogged about my profound disappointment with the response offered by the combined professional tax institutes to HMRC’s offshore tax disclosure scheme.

It seems to me that this might be a seminal moment for these institues in the UK for two reasons. First their credibility depends upon the confidence their members have in them. Second, their influence depends upon the credibility of the role they play in society.

Judging by the pathetic advice they have issued so far on this matter I can see no reasons why a) their members should have any confidence in them b) those members should have any hope of getting useful advice from their Institutes on this issue c) those members should believe they are getting anything like value for money in exchange for their membership at a time when pressure on those members will be high. Unless they act very fast to get their act together (and I’m not an optimist on this) then the Institutes are in deep trouble.

Even more important though is the choice that the professions seem to be making in their response to the HMRC initiative. The philosophical choice it seems they were presented with was a) support the HMRC approach and do all they can to make sure it works with the support of their members, or b) assume it was their primary job to defend those who have evaded tax and now face penalty for doing so. It’s abundantly clear from all that has been written by the professional bodies that they chose option (b).

This is dereliction of duty on their part. I am simply amazed that the three issues they could raise for the benefit of the press on this matter are:

- The tight timescale being imposed for disclosures under the initiative.

- That they think HMRC have chosen to launch the initiative with minimal publicity and that this means that the burden of promoting this HMRC initiative is instead being placed on the banks and tax advisers.

- Practical differences between the offshore initiative and the parallel onshore initiative.

The first is an effective suggestion that professional people won’t be able to cope with this matter. This second is a straightforward whinge which is firstly untrue, and secondly where as a matter of fact the professions do have a duty to publicise the issue, not least because they’ll already be representing a lot of those who now need to make declaration. The last claim is a sure sign that technicians want to stick their heads in the sand.

What they should have said (but emphatically did not – going out of their way not to endorse this whole arrangement) is that:

This is a welcome opportunity;
They will be encouraging all their members to join with them in publicising this initiative;
Professional tax advisers are available to help anyone requiring advice on this issue;
They will be encouraging all represented taxpayers in the UK to make full disclsoure if they have not already done so;
Best endeavours will be used to ensure that help can be provided to anyone who has not already got an adviser.

But this opportunity to support members, and to show proper commitment to lawful payment of tax has been foregone.

What’s the message that’s been put out instead? That the tax profession are a bunch of moaners who side with those who have not paid the tax due by them. That’s the message I get. This was a philosophical choice. It was the wrong choice. The tax authorities, tax practitioners and the public of this country will observe that choice. All will, if for differing reasons condemn it. And that’s right and proper, and all that is deserved.

What’s abundantly clear as a result is that the tax profession in the UK needs new leadership – leadership that believes in tax compliance, helping tax professionals and helping the public. It doesn’t seem much to ask, but we certainly haven’t got it.

The Institutes – failing to live up to expectation on the tax amnesty

Amnesty 4 Responses »

Apr 232007

I have to be candid, I am appalled by the response of the UK’s tax institute’s to the HMRC offer of reduced tax penalties to those making voluntary disclosure of their offshore bank accounts. I’m pleased to see I’m not alone. My friend Dennis Howlett shares my concern.

The first thing that worries me is that the combined Institute’s (and let’s be clear, it’s all of them as they have collaborated on this issue in the guidance issued here) seem quite sure that HMRC is creating a massive injustice by offering this arrangement to those who have broken the law. Take this for example, which was specifically from the ICAEW:

We are particularly anxious to elicit clear guidance from HMRC about how they will operate their prosecution policy on incorrect and incomplete disclosures and about the level of certainty taxpayers coming forward will have that they will not subsequently face prosecution or further investigation.

HMRC have said:

We expect the vast majority of disclosures to be accepted. We will send you a letter accepting your offer as soon as possible and by 30 April 2008 at the latest. If we cannot accept the disclosure we will open an enquiry in the normal way before 30 April 2008. It is also possible that in exceptional circumstances a disclosure may be considered in accordance with our published criminal investigation policy. In these cases, the material in the disclosure could be used in evidence against you.

Let’s be clear about two things:

a) We know what the Revenue is saying is true. They’re doing this precisely because they haven’t the resources to follow up the vast majority of these cases;
b) If there’s an exception there’s going to be a good reason – which is that the Revenue have additional information which it seems worth pursuing.

In other words, the ICAEW and the Institutes are getting their knickers in a twist about the rights of people to not be prosecuted who have a) already committed a tax offence b) now declare that fact under this arrangement and c) knowingly don’t do so properly.

What the heck is this about? No one could be more concerned about human rights than me, but there are both limits to rights and it’s a fact that rights are matched by obligations, one of which is to abide by the law. So if there are incomplete disclosures at this stage the tax institutes should be expecting, and even welcoming prosecution by HMRC. They should expect nothing less of taxpayers who come forward now. I’m ashamed that this, however, seemed to be the only point my own Institute could make in its press release on this issue. I never knew I was in a body whose main concern was with protecting persistent liars from prosecution.

Secondly, I’m staggered by the comments in the joint Institute’s paper which seems to imply that it’s unjust that disclosure of an error under this scheme also require that all other errors in tax returns be put right at the same time. Take this for example:

Although the facility is called the offshore disclosure facility, its scope is wider than that name implies. Although the facility is only open to those who have held an offshore account, it is a condition of taking part that a person discloses and pays all arrears of tax, both onshore and offshore. The ramifications of this could be considerable, and it is important that members understand precisely what is involved before advising clients.

Come on, what did they expect? I hate the obvious criticism inherent in the construction of the first sentence of this paragraph. And I dislike as much the obvious distaste inherent in this paragraph about the fact that this opportunity is going to be used by the Revenue to make sure that a taxpayer discloses all liabilities or will suffer risk of prosecution. They trivialise this with an example so trite that they must know that it is facile:

Take, for example, the case of a sole trader who has not disclosed all of his trading income, and who has diverted some of it offshore. He will have to recompute his trading profits to include the omitted takings. But he will also have to make any other adjustments. So, for example, if he has only added back 20% for private motoring expenses, whereas in reality the private motoring expenses were 50%, then he will have to make the appropriate adjustment. This could also mean that there was an under-declaration of VAT, and this will also have to be accounted for in the settlement.

Put bluntly, I expect better of them.

Thirdly, I think the whole tone of the advice is patronising to practitioners. For example, it says:

HMRC have designed the facility to be as simple as possible to use, and it is likely that all members will be able to deal with the more straightforward cases, such as the omission by a client of interest from one offshore bank account where all of the bank statements are available. Members should, however, be aware that some offshore matters can be highly complex, and that they should not act in cases which are outside their competence.

Why on earth don’t they simply say “leave all the difficult bits to us clever chaps in the Big Firms?”. Because that’s what’s implicit in this.

And this is also implicit in the pathetic appendix to the advice which is a suggested letter to clients on the issue. My guess is that this was written by someone who hasn’t had to communicate with a client for years. It’s useless but is entirely indicative of the fact that those who wrote this note seem so intent on protecting the human rights of those who have broken the law and intend to continue doing so that they’ve forgotten that a primary duty of the professional institutes is to help their members. In other words the guidance issued should have said the Institutes were planning to, if they could not already issue

1. A realistic letter a practitioner could send to their clients;
2. An engagement letter for use on these matters (which is vital);
3. Advice on billing for this work;
4. Provide an on-line or downloadable calculator of penalties and interest due matched to a schedule to be used for disclosure purposes, which would be of immense use to practitioners at this time;
5. Provide some real help with the technical issues involved to ensure members really do help the public.

But there’s no hint of this. Which is my biggest worry of all, which is an issue I’ll return to later.

Accountancy Age – spot on regarding domicile

Amnesty, Domicile Comments Off

Apr 182007

Accountancy Age has discussed the problems that have given rise to the need for a tax amnesty. As it says:

What the taxman needs to create is a culture in which such evasion, and contrived tax avoidance, is frowned upon.

In that context, it should start with its own policies. Where tax on foreign income is concerned, the system of domicile and residence that the UK operates is antediluvian.

Successive generations of politicians have bottled the chance to drop it, even though it helps to create a culture in which tax and civic responsibilities have become obscured.

Taxpayers, seeing wealthy non-doms avoid taxation, may feel they have a right to the same. It’s time the rule, for that reason and for many others, was ditched.

100% right Accountancy Age. As is your noting that most commentators have utterly failed to understand the real tax context of this amnesty.

Cough up, or else

Amnesty, Tax management Comments Off

Apr 182007

HMRC have made clear that the ‘tax amnesty’ is an opportunity. As Accountancy Age reports:

Offshore tax evaders are set to feel the full force of the taxman’s wrath if they fail to take part in the offshore amnesty announced this week, the taxman has made clear.

The body told Accountancy Age that it will be sending out enquiry letters the day after the amnesty closes, to all those who have not confessed to unpaid liabilities.

I am delighted at that news. The velvet glove has an iron fist. Just what is needed.

Full marks to HMRC for news management as well.

The bit about the amnesty most people are ignoring

Amnesty, Corruption, Tax management 1 Response »

Apr 182007

I said recently I didn’t often quite the Telegraph, but I’m going to again. It has a neat little table on the consequences of the UK tax amnesty for a person holding £100,000 offshore, deposited at the rate of £10,000 a year over 10 years. They say that tax on the interest would be £12,827, the penalty would be £1,283 and the interest due would be £3,323 – a total of £17,433.

The trouble with this calculation is it’s highly likely to be wrong. What this article, and almost none of the others that provide any reasonable comment are saying is that the amnesty does not only require payment of tax on the offshore interest not declared, it also requires payment of tax on the money held offshore if that has not already been declared.

Some of the money held offshore will have been taxed already. A lot will not have been. Suppose that the £10,000 arrived in the Channel Islands out of diverted fee income from a business (easy to arrange as the Channel Islands are part of the UK banking system). In this, common scenario it’s likely that the following taxes will have been evaded:

1) VAT. This is likely to have been due at 17.5%. Out of £100,000 that’s £14,893. Add 10% penalty. That’s £1.489. Then add interest at the same proportionate rate as for income tax. That’s 25.9%. That comes to £3,857. The total is £20,239.

2) Now suppose the income was not subject to income tax before going to the Channel Islands. Out of the £100,000 a total of £14,893 is VAT, leaving £85,107 of income subject to income tax. If this were just subject to income tax that sum due would be £34,042. The penalty would be £3,404, and the interest is £8,817. A total of £46,263.

3) But let’s assume a limited company was, more likely, running the business. Now this sum paid to the Channel Islands for the benefit of the director is subject to PAYE. So, NIC is due at 12.3% out of the gross sum of £85,107. That’s about £9,657. Add interest and penalties and it comes to £13,123.

4) The income tax due in this case would be less – let’s assume 40% on £85,107 less £9,657 i.e. £75,450. The tax is £30,180. The penalty is £3,018 and the interest £7,816. That’s a total of £41,014.

Let’s now, totally plausibly, add the Telegraph’s total figure to scenarios 1, 3 and 4. The total tax, interest and penalty due is now £91,809. The amount now in the account according to the Telegraph would be £132,068. Just over £40,000 will be left after the tax is paid.

This is why offshore is so pernicious. This is why it must be stopped. This is why the windfall from this will be so high. And this is why much heavier penalties must be charged for those who do not come forward now. The penalty in this scenario is just over £6.700. It has to be five times that, at least, after the event to persuade people to pay up now. If that were the case another £27,000 would be due. Most of the offshore account would be wiped out. And so it should be.

The UK tax amnesty

Amnesty, Corruption, Tax Havens, Tax management 7 Responses »

Apr 182007

What is to be made of the UK Revenue’s announcement that a tax amnesty is to be offered?

I blogged this issue yesterday, not knowing that the amnesty was to be announced during the day. And I have to say I’m pleased that the conditions I laid down look like they will be met, bar that the application of the amnesty is more widespread than I would have hoped. I do however have little doubt that it’s human rights legislation that has required the amnesty to apply to all sources of income: on refection I realise it would have been prejudicial to apply it to one source alone. This therefore is a massive opportunity for the ‘shadow’ economy to come clean in the UK.

So what to add? I welcome the fact that the Revenue say that whilst they will accept disclosure in most cases as being complete, and that 10% penalties plus tax and interest will usually be the limit of liability. As a practitioner I know this to be useful. But I’m also delighted that they reserve the right to do otherwise, and name circumstances where this will not apply (page 10 here). It’s absolutely right, for example, that those who have already settled cases in the past with the Revenue on the basis of full disclosure having been made should now be subject to very high penalty if it has transpired that this was not the case.

But perhaps the biggest things to note are these:

1) The Revenue look like they’re managing this well: a clear web site and publications are available. The procedures are obvious. This is good news;

2) It looks like the publicity will be good: that’s welcome, but I’d still strongly recommend every accountant to write to all their clients to mention this issue, now (I will be);

3) I sincerely hope accountants have the capacity to handle this work: the deadlines for notification are fairly tight (although I’m not complaining);

4) I hope the Revenue move after the amnesty to make clear that tax compliance has to be the basis for disclsoure in the future: the spirit as well as the letter of the law has to be followed. The amnesty is, in other words, over once this period comes to an end;

5) I hope practitioners get that message;

6) As I said yesterday, this is now the time to focus attention on the biggest culprits in this. Of course those who have these accounts and who knew they should declare the tax are at fault, but the big culprits are the banks who ran these accounts. They must have suspected many were used for tax evasion: I think they had to suspect that and should have reported it locally in the Channel Islands and the Isle of Man in every case where information exchange was not allowed under the EU Savings Directive, but none have done so as far as I can tell. Candidly, I think this a shocking neglect of duty on their part and questions have to be asked as to what they were doing in this case.

7) The same questions have to be asked of the credit card providers (usually banks) who in many cases facilitate remittance of these funds back to the UK.

As someone has said from the IoM on this site in the last 24 hours:

[A]s far as I am aware the vast majority of professionals both on- and offshore do do their jobs properly and take the greatest care to ensure that all relevant laws and regulations in their jurisdictions are complied with.

That is not good enough. You have also to be sure you’re not facilitating crime elsewhere to ensure that you’re not either assisting money laundering or tax evasion. What is clear is that this culture does not exist in the Isle of Man. This is precisely the problem the US Senate identified with the Isle of Man. Strict observance of local law allows a person to turn a blind eye to the reality of what is happening. I suggest that this is commonplace.

UK taxpayers need to get their act together now. Offshore, and its banks, need to do even more.