Advisers could be liable for inherited clients’ tax schemes – lawyer

Advisers could face criminal charges under new powers for HMRC following the Budget if they fail to prevent tax evasion by inherited clients, a lawyer has warned.

HMRC is consulting on a new corporate criminal offence for firms failing to prevent tax evasion, which will implicate advisers who have clients with offshore bank accounts, said Pinsent Masons head of tax Jason Collins.

Tax evasion as, opposed to avoidance, is a criminal activity and criminal sanctions are already available against those who facilitate or encourage tax evasion.

In the new proposals there will be no more “passing the buck” for advisers, he said.

Currently firms and their employees have to report any suspicious activity by their clients and once they’ve done that, responsibility passes to HMRC.

Under the new rules firms won’t be exonerated by simply informing the tax office, they will be held to account for any client tax evasion they have failed to prevent, including structures put in place by former advisers of current clients.

“Financial advisers as part of their job get their arms around the extent of their client’s wealth. If they become aware of an offshore bank account and are worried about whether it’s properly declared, if they do not report it they will become guilty.

“The essence of this offence is it’s there for boards to sit up and pay attention. It’s about driving behavioural change from the top of the organisation all the way through it.

“It is designed to say you can’t wash your hands if you do take on that business and the business is committing the offence,” Collins said.

Strict liability

In a paper setting out the government’s approach to tax avoidance and evasion published on 19 March, it said it will introduce a new strict liability offence for people who have not paid their tax on offshore income and for those who failed to prevent it.

Strict liability means the government will not have to prove a person’s intent to evade tax, only that they have done it.
The new measure will include a fine equivalent to that paid by the individual evading tax, and a public naming and shaming.

The paper said: “The government today announces it will create a new offence of corporate failure to prevent tax evasion or the facilitation of tax evasion, following consultation.

“This government’s message is clear to those that are hiding undeclared income offshore or are enabling offshore tax evasion – HMRC is closing in and anyone found engaging in this behaviour will face serious consequences when found.”

The tax office also plans to create new rules to make it a requirement for advisers to inform their clients of its new initiatives and powers.

These include an agreement with some 90 countries to share account information automatically from 2017 and new tougher disclosure facilities for those wanting to report they have not paid their tax before automatic disclosure begins.
 
Domestic avoidance

HMRC is also stepping up its efforts to tackle tax avoidance in the UK.

It will make greater use of new powers gained last year, which allow it to ask those it deems guilty of tax avoidance to pay upfront.

It will send out 21,000 more ‘accelerated payment’ notices than previously announced, predominantly to people it has already identified.

By the end of 2016, 64,000 users of avoidance schemes will have been required to pay tax upfront, and by the end of 2019/20 the measure will have brought forward over £5.5 billion in payments to the Exchequer, it said.

Claims management firms Rebus head of client relations Martin Taylor warned “some people will be getting quite a nasty shock in the near future”.

He said some of HMRC’s latest crack-downs came as a surprise to people, such as business premises renovation allowance schemes, which it put under its spotlight last year.

These are schemes used to bring empty business premises back into use in deprived areas but HMRC found some were used to avoid tax.

But Taylor said he didn’t think avoidance schemes are attractive to advisers now in the way they were 10 years ago.

“The Halcyon days have long gone. A lot of the advisers in this market are no longer trading, they’ve closed up shop.

“I just don’t think there is much of a market for tax avoidance anymore. HMRC’s deterrents are working,” he said.

In a further move, the government said it will call on regulatory bodies in the tax and accountancy profession to “take on a greater lead and responsibility in setting and enforcing clear professional standards around the facilitation and promotion of avoidance”.

HMRC explains

Tax evasion is when people or businesses “deliberately do not declare and account for the taxes that they owe” and is always illegal.

Tax avoidance involves “bending the rules of the tax system to gain a tax advantage that Parliament never intended. It involves operating within the letter – but not the spirit – of the law”.

Tax planning involves using tax reliefs for the purpose for which they were intended, for example by making contributions to a pension scheme.

“However, tax reliefs can be used excessively or aggressively, by others than those intended to benefit from them or in ways that clearly go beyond the intention of Parliament. Where this is the case it is right to take action, because it is important that the tax system is fair and perceived to be so.”