Taskforce activity, common areas of challenge and the busy task at hand

Since their launch in 2011, HMRC taskforces have recovered over half a billion pounds in unpaid tax and penalties. More than 140 taskforces have been set up to identify and investigate individuals and businesses operating in sectors deemed to be prone to tax evasion. Taskforces have targeted sectors such as restaurants, the tobacco industry and more recently even the adult entertainment industry. Given that a disclosure facility was launched on 14 March for those who haven’t disclosed income received from credit card transactions and enquiries have already begun flowing, that would indicate a taskforce is in operation.

Various types of business are considered by HMRC to pose a significant risk of evasion. The most obvious of which being cash businesses, making it easier for takings to be diverted. As well as targeting cash businesses, HMRC also target businesses where it is known that employees (usually low-paid) have their wages supplemented by cash payments. Examples might include restaurants, takeaways, care homes, children’s nurseries, coach operators and cleaning businesses. The risk factor is classified as high because payment of cash wages requires both the understatement of takings and the avoidance of PAYE and NIC on the wages themselves. Furthermore, because of the element of collusion needed, these cases are likely to be considered for prosecution.

However it’s not quite that straightforward and in deciding where to target their resources HMRC make use of the ever growing range of tools at their disposal. HMRC’s central risk assessment computer system, Connect, has become increasingly sophisticated and can be used in identifying risks to the Exchequer posed by categories of taxpayer.

These taskforces run alongside HMRC’s various campaigns which offer opportunities for taxpayers to disclose their indiscretions and regulate their tax affairs under favourable settlement conditions. The same favourable conditions however are not available for individuals or businesses finding themselves the subject of an enquiry by one of these taskforces, who have access to a full range of civil and criminal sanctions.

If a taskforce is in operation for undisclosed income from credit card transactions, it indicates the ability of HMRC to use their information powers and link that information to taxpayers. The digital era and HMRC have evolved.

The last update from HMRC on their task force activity related to something far more elaborate. For those that have read the international bestselling book by Bastian Obermayer and Frederik Obermaier, your ears may have pricked up on 8 November 2016. The last sentence on page 313 of that bestselling book reads “The start of the end of the tax haven”.

The Panama Papers Taskforce

This particular taskforce is unique in that it is dealing with information leaked from Mossack Fonsecca. That information does not only relate to the globally uber rich who have sought to escape transparency and benefit from political gain at the expense of the social well being of a nation (alledgedly) but to many others. To put it into perspective the HSBC leaked files were around 3.3gb, whereas the information leaked from Mossfon was around 3 terabytes. Journalists picked the front page stories. A search through ICIJ’s Panama paper online resource provides a number of other interesting names, which when linked to UK companies is very interesting to someone defending clients subject to a tax investigation. One search resulted in a connection to a company, a businessmen who was relatively prominent in local politics and a gain made in a BVI company amounting to £38m. Of course, there may be nothing sinister here but why use a BVI company? This is the sort of information the Panama Papers Taskforce is looking at.

On the 8 November, HMRC announced that “more than 30 individuals and companies are under active investigation for criminal or serious civil offences linked to tax fraud and financial wrongdoing uncovered by the Panama Papers Taskforce partners, with hundreds more under detailed review”.

The statement also set out that the taskforce was working jointly with other regulatory bodies and National Crime Agency, identified professional enablers of economic crime, and placed 43 high net worth individuals under special review (remember there is also a high net worth taskforce). For those dealing with offshore tax disclosures, they will know this is pretty impressive in the amount of time since the leak. Offshore structures and the tax implications are hugely complicated and often involve an enormous amount of forensic work. HMRC appear to have acted quickly.

The speed might be explained by the Joint Financial Analysis Centre specifically established and in possession of unique software tools.

Beyond Panama

A number of investigators we have worked with have moved into new teams, although thankfully they are still around to close cases.

There is a significant shift to offshore teams presumably in light of increasing global financial transparency: more than 100 countries, including British Overseas Territories and Crown Dependencies, are automatically sharing offshore account data. Also, there seems to be movement towards professional sports and high net worth. The one thing these categories have in common is that invariably a number of “taxpayers” in these categories have, in our experience, used offshore structuring.

Lionel Messi, the footballer subject to prosecution by the Spanish tax authorities, used both image rights structures as well as holding properties in offshore companies. A few years ago, whilst in Gibraltar, we reviewed structures established by a legal firm (since the subject of a scandal and demise) and number of well-known UK sportspersons had invested in property through offshore companies on the advice of their management team. A few years prior, a number of image right structures came our way including:

• Split employment/self-employment structures with contributions to a employee benefit trust/remuneration trust structure similar to those used more recently by contractors
• Offshore trust/foundation and company structures to which the rights were sold
• Offshore pension arrangements to which the rights were sold

Having reviewed this structures in detail, there were then a number of risks. The main one being whether the transfer of asset legislation applied. A number of reasons were put forward about why anti avoidance legislation would not apply although in today’s environment the risk of challenge might be greater.

Our view is simple, HMRC cannot ignore the information it is receiving both from the ICIJ as well as offshore jurisdictions. Given the likelihood of higher revenues from this area, it must be an area that HMRC are going to concentrate on, regardless of the available disclosure facility and time to correct.

The pain of getting it wrong

The Government has given HMRC the ability to make good examples of those using offshore structures (wrongly). Amendments introduced by Finance Act 2016 have come into force (SI 2017/259) for income tax and capital gains tax purposes with effect from 6 April 2016 and for IHT transfers of value on or after 1 April 2017.

Included within the provisions is the naming of individuals that have been charged with a penalty for a deliberate failure to notify or a deliberate inaccuracy to a return and those whose affairs are structured through offshore entities, such as companies, partnerships or trusts as well as civil penalties for enablers of offshore tax evasion.

SI 2017/261 sets 1 April 2017 as the date that HMRC’s powers under S164 FA2016 come into effect to publish details of deliberate defaulters in relation to offshore tax non-compliance. An extension of the naming provisions at S94 FA2009 enable HMRC to name individuals that control offshore structures where the individual has obtained a tax advantage as a result of the default. The naming provisions apply to defaults under: Sch 24 FA2007 penalties for errors in returns and Sch 41 FA2008 penalties for failure to notify a charge to tax.

With all the tools in place to identify those with offshore structures with the benefit of enhanced penalties, would you not want to use them?

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