Shouldn’t there be tax amnesties for all?

Thursday, August 19, 2010 | Posted by: Grant Summers
Categories: Personal, Protecting your wealth | Tags: tax, tax planning, HMRC, offshore, tax havens, disclosure, penalties, Offshore Disclosure Facility, NDO, amnesty, evasion, medical, Grant Summers

With hundreds of billions of national debt and a dwindling workforce at HM Revenue & Customs (HMRC), the Government is instigating campaigns to refill the public purse in the fastest way possible for the least cost. The consequence, says Grant Summers, is a series of campaigns that exclusively favour particular sections of society.

Recent economic events have left the Government under immense pressure to raise more revenue for less cost. Nothing epitomises the ‘less for more’ approach HMRC has been forced to adopt better than the series of tax disclosure campaigns that have been rolled out over the past few years.

The first of these was the ‘once in a lifetime’ Offshore Disclosure Facility in 2007, from which HMRC netted more than £400 million, at a cost of approximately £6 million. The ‘carrot’ was a reduced fixed penalty. The ‘stick’ was HMRC’s suggestion that the Government already held information to identify taxpayers who did not come forward. Within two years, however, HMRC introduced not one but two further disclosure opportunities in relation to offshore bank accounts. HMRC’s yield from the New Disclosure Opportunity was £82 million from 5,500 disclosures.

These initiatives would appear to target a particular section of society that, in all likelihood, has reasonable levels of income and savings, and an ability to pay the tax bill. Many of the holders of overseas accounts will already be in the tax system as higher or additional rate taxpayers. This has been cited by some UK broadsheets as displaying a bias towards a certain class of society. Essentially, HMRC has identified a series of opportunities that target a ‘quick win’. Indeed, one of the measures to protect tax revenues announced in the 2010 Budget was an increased penalty of up to a massive 200% of the unpaid tax for deliberate and concealed evasion linked to offshore income or gains.

Two key factors are required before HMRC can target a group for special treatment. The first is that there has to be an identifiable group that is known to have underpaid tax. The second is that HMRC must have information with which it can identify and charge the tax evader in the event that he fails to come forward.

The most recent initiative was known as the Tax Health Plan, which provided medical professionals with an opportunity to disclose undeclared income, generated from their professional activities, under favourable terms. This yielded £9 million to HMRC from 1,500 disclosures. Again, HMRC has stated that it has information that it will use to identify medics who fail to come forward and penalise them more severely than those who volunteer information and pay the correct amount of tax. HMRC has already indicated that investigations and prosecutions will increase. Rumours abound that lawyers and accountants are next on HMRC’s hit list.

While HMRC has always had access to information that would allow it to target groups of individuals (social housing payments to landlords and Land Registry entries have been popular sources of information in the past), the current strained financial climate gives HMRC a particularly favourable case in respect of obtaining and using information in this ‘amnesty’ style.

A high probability of discovery, combined with a relatively low penalty, makes these arrangements digestible for taxpayers and, in an economy where everyone is expected to do their bit, such opportunities may find favour with HMRC for some time to come. However, one must question whether allowing particular groups of individuals to take advantage of these favourable disclosure opportunities is fair, and whether a fairer way of proceeding with this policy would be to have a ‘once and for all’ disclosure opportunity open to all taxpayers who want to put their affairs in order.

If you have any concerns about the issues covered in this article and wish to make an assisted disclosure to HMRC, contact Grant Summers at Grant Thornton for a free informal discussion on 0161 953 6425, or email grant.summers@gtuk.com.

Need further help? Read Grant Thornton’s Tax Investigation page.

This article by Grant Summers, Tax Investigations Partner, appears in the summer 2010 issue of Bespoke magazine, which you can either download as a PDF or receive as a hard copy. Here’s how you can sign up to receive future editions.

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