We saw the first letter from HMRC following their receipt of information under the exchange agreements with other countries in March this year. Some may have received similar requirement to correct letters before March and some will still not have been sent. Those letters encourage taxpayers to consider their UK tax responsibilities. Not a worry for those with offshore assets, gains or income that have been declared or that don’t require further action.
However, there is a problem:
- The complexities of the legislation regarding the scope of taxing offshore income and gains
- The dramatic and subtle changes in that legislation
- Case law and the desire of the courts to combat tax avoidance
- The significant onus placed upon the taxpayer to make sure they are acting appropriately and the draconian provisions if they are found not to be
The requirement to correct letters sent subtlety acknowledge the ‘greyness’ of the law. That greyness causes significant risk for those with offshore interests.
The letters were sent by the Deputy Director of Risk and Intelligence Service Offshore, Mrs Margaret Mousley. It is unlikely that she reviewed every single taxpayer’s tax position and therefore many would simply consider them to be scaremongering. Well they are just that. They are drafted to make a recipient wonder whether they do have a problem. Would an acting accountant, maybe the one who advised on the tax position originally, stand by their advice? Would they now find a risk?
The requirement to correct letters, which were simply templates, address the recipient as “Dear Sir or Madam” regardless of whether the letter is addressed to a Mr or Mrs. Terribly annoying that the mail merge could not simply distinguish the known gender of the recipient. The letter are headed “Your client’s overseas accounts or investments” and therefore it is suspect that even Mr David Cameron will receive a letter (a long with many other politicians and high profile people).
The letter to the agent reads:
“We have written to your client as we have information that shows they may have received overseas income or gains which is taxable in the UK. We have received this information through the UK’s information exchange agreements with other countries.
Offshore tax is complex and the tax treatment of arrangements set up some years ago may have changed. Your client may ask your advice on what to do.
The letter gives your client the opportunity to review their tax affairs and to tell us of any tax liabilities.”
The letter appears to confirm HMRC have very little information and a lot of suspicion. They do kindly set out advice that, once taken, may not stand up in the future. Maybe this is because a lot of fiduciary providers looking after offshore structures didn’t really worry about seeking tax advice or following tax advice received. That is stated without knowledge of providers who may have passed elements of control to those behind the structure or benefiting from it. Some providers may have been advised to ensure economic substance but in fact the actual substance is far below that which would be required to ensure the structure maintained its tax favoured status.
The letter to client reads:
“It is important that you check that you have declared all of your UK tax liabilities and the vast majority of people do. Some people with assets overseas have found that changes, to their personal circumstances or to tax laws, mean that previous tax advice is out of date.
Please tell us if you have additional tax liabilities to disclose, or if you have no additional tax liabilities. You should do this by returning the enclosed certificate by [date].”
Obviously HMRC are distinguishing between the vast majority that declare their UK tax liabilities and those with assets overseas. Is it meant to read that those with assets overseas are not the vast majority and therefore by default are doing something wrong? Maybe that is just being cynical. Again the ‘changes’ are mentioned – rather eerily the undefined changes are mentioned as if to tee the recipient up to something neither they nor their adviser is aware of (and maybe so).
The certificate is a nice way to evidence the behaviour of the recipient. By returning the certificate with a signature you are asserting that you know everything is correct. You have taken appropriate steps to find out because as a prudent taxpayer you would, when HMRC tell your agent this is an opportunity to review your tax affairs, do so. The result of the certificate and later being found to be wrong and not having sought advice is to be within the offshore criminal offence. Some may say this is cunning, underhand and devious, whilst others would simply say “not our problem”.
Returning to the Mrs Mousley’s letter…what is someone to do?
After decades acting on serious fraud cases, we have mostly told clients not to panic, make a disclosure and everything will be alright. That is however not possible now. Unfortunately, the circumstances are different due to the new legislation. There is every reason to panic and worry although not addressing the situation is not going to help. A concerned taxpayer will need to take decisive action. Brave up to the circumstances and seek comprehensive independent advice. Independent means impartial and not influenced by having previously advised. The good news is that if your affairs are complicated, the likelihood is that you sat or sit within the grey area of the law, an area open to technical debate and negotiations. Also, the Taxpayer’s Charter may offer an element of comfort in that taxpayers should be treated fairly – why would one taxpayer be treated differently to another in similar circumstances? The advantage of dealing with lots of cases is that those cases have similarities although settlements can be negotiated and settled quite differently. Our advice is to have an independent review, know your options and be aware!