Do you have a gold card or executive membership for any clubs and services? Most clients will have experienced the slightly superior service they will be offered as a ‘high net worth’ customer. Almost every organisation is tailoring its services to suit the perceived value of the individual customer; it’s often wrapped up within the phrase ‘one-to-one’ marketing.
Keen not to miss the boat, HMRC also adopted a similar strategy to segmenting its ‘customers’ and the ‘service grade’ it provides when it originally launched the Affluent Compliance Team. This was set up in 2010 to carefully scrutinise the financial affairs of the wealthiest taxpayers in the UK and has recently been expanded as we will discuss.
According to HMRC, this division, dedicated to ensuring ‘the better off play by the rules’, has appointed a further 100 Inspectors as its work expands. The cost of these additional Inspectors has been covered by an extra £5million in Government funding and HMRC expects to generate an extra £75m a year through its activities. Although no-one wants to be the subject of an HMRC enquiry, from our experience the Affluent Compliance Team does provide a ‘platinum grade service’ so falling into their remit is not necessarily a bad thing.
This is because its general staffing level is of a higher grade than in other offices, as one would expect given the much higher tax which is being collected from those individuals. When announcing the recruitment drive, HMRC outlined the person specifications for the roles it was filing as having “…external experience and appropriate qualifications for Inspector and lead case director roles. We want people with recent commercial and corporate experience in personal tax to help us understand our customer base. This is an exciting opportunity to work at the forefront, tackling those who do not pay the right tax.”
However, regardless of whether they provide a better service or not, no-one wants to be the target of an enquiry as a result of HMRC broadening its ‘wealth’ eligibility criteria. Originally, the Affluent Team’s focus was taxpayers with an annual income of more than £150,000 and ‘wealth’ of between £2.5 million and £20 million. This has been decreased and will now cover those with ‘wealth’ valued at between £1 million to £2.5 million and earning £150,000. HMRC’s High Net Worth Unit will continue to serve those with a wealth in excess of £20 million.
What exactly does HMRC mean by wealth we wonder? They have suggested that originally they were interested in the affairs of roughly 300,000 people, which after broadening the criteria of the Affluent Unit has extended to a further 500,000 people.
Our advice is to be aware of this new taskforce and ensure your tax affairs do not look irregular. The Affluent Unit has said they are specifically on the look out for people who meet their income/asset criteria and who also:
- Employ aggressive tax planning strategies and habitually use tax avoidance schemes;
- Have a low effective Rate of Tax across their (large) total income;
- Use bank accounts in Switzerland which they may not be declaring;
- Are late to file their Self Assessment Tax returns;
- Employ strategies to avoid or evade Stamp Duty (SDLT) on property purchases;
- Have UK and overseas property interests.
As we mentioned last month, HMRC now has international agreements in place with all tax efficient jurisdictions whereby it has free access to bank statements and financial information relating to offshore accounts.
Where HMRC is able to obtain detailed bank statements from individuals, undeclared overseas property income can be traced for instance by looking for patterns showing air travel costs to the same location, local transactions at supermarkets or cash being withdrawn from ATMs and evidence showing local bank accounts are being used to hold, for example, undeclared rental income.
Inspectors working in these units are highly competent and will quickly amass a detailed enough knowledge to spot suspicious patterns of behaviour. As a result, discrepancies are more likely to be identified and result in an investigation.
In all such situations, our advice to clients is to be as transparent as possible and, if necessary, to take advantage of an opportunity to make a disclosure using the various Facilities available. This means any penalties charged will be fixed and a criminal prosecution can be avoided. For instance, if your concerns relate to overseas income, the Lichtenstein Disclosure Agreement may be relevant and for other tax underpayments or past fraudulent activities, there is the Contractual Disclosure Facility.
If you have concerns or questions relating to making a voluntary disclosure about tax underpayment, it is important to see professional advice beforehand. For further information, please contact Lesley Stalker by emailing las@rjp.co.uk