Insights

Tax disclosure facilities enabling taxpayers to declare previously unreported income and underpaid taxes have been available for some time. One of the most well known, the Liechtenstein Disclosure Opportunity (LDO), is aimed at taxpayers with unreported income arising from offshore assets and will close at the end of 2015, slightly earlier than originally announced. It offers taxpayers the benefit of an amnesty period, low fixed level penalties and a guarantee that criminal proceedings will not be taken.

As well as encouraging taxpayers to come forward by offering such facilities, HMRC have also offered settlement opportunities to those who have undertaken what they consider to be tax avoidance schemes, (eg. EBTs and EFRBs).

This is in conjunction with the contents of the 2014 Finance Act which significantly enhanced HMRC’s powers through the introduction of Advance Payment Notices (APNs). This is a mechanism which enables HMRC to require taxpayers using avoidance schemes to pay the disputed tax upfront.

Essentially an APN is a tax bill issued by HMRC that must be paid within 90 days and against which there is no right of appeal. This will significantly improve HMRC’s cashflow as it requires the disputed tax to be paid in advance of the resolution of any litigation, rather than the taxpayer only having to pay once the case has been decided and it has been agreed that additional taxes are due. As it is not uncommon for cases involving these schemes to take many years to resolve, this is clearly of benefit to HMRC.

HMRC are currently issuing large numbers of these notices, typically to taxpayers who have used certain ‘arrangements’ that have either been disclosed under the disclosure of tax avoidance schemes (DOTAS) or a general anti-abuse rule (GAAR).

Following some high-profile celebrity involvement with various tax avoidance arrangements, much has been made in the press of HMRC’s new powers and the ability to collect tax arising from schemes that were entered into some time ago – possibly long after the benefits of entering into the scheme have been forgotten.

To date, £1bn has been generated through the issue of APNs and this figure is expected to reach £5.5bn by the end of 2016, which suggests a lot more APNs have yet to be issued!

For these reasons, with the exception of HMRC approved initiatives, our advice to taxpayers is to avoid any schemes or arrangements that have the result of reducing tax liabilities. If you are approached to consider schemes that will help to save tax, the evaluation process is simple. If they sound too good to be true, they probably are. There are many ways to reduce your personal and corporation tax bill utilising legitimate tax relief initiatives offered by the government; entering into something that is viewed as artificial or a scheme of avoidance will merely serve to raise your profile with HMRC with the likely result that they will look much more closely at your affairs.

If you think you may have additional tax to pay and have not utilized a previous tax disclosure facility while it was available, it is important to seek specialist advice. In some circumstances it may be possible to make a tax disclosure through the LDO, but this is a complex area and needs to be examined on a case by case basis.

For further information, please contact Anne Eager ae@rjp.co.uk.