Government Tightens the Screws on Tax Evasion and Non-compliance

Individuals should focus on legitimising their assets while they can and start to look at how they can restructure their investments.

Measures to tackle tax evasion continue to be a key focus for the government, with £800 million HMRC funding to be reinvested in additional work to tackle tax ‘evasion and non-compliance’.

Given the high return on such expenditure, this is expected to deliver an additional £7.2 billion in revenue over the next five years.

We hear that individuals should focus on legitimising their assets while they can and start to look at how they can restructure their investments to simplify and improve their reporting requirements and tax liability.

Tina Riches, national tax partner at Smith & Williamson, the accountancy and investment management group, says:

“One of the key proposals is the introduction of a new penalty of 60% of the tax due to be charged in all cases successfully tackled by the General Anti Abuse Rule (GAAR). Taxpayers are still very much in the dark on what is caught by the GAAR. To date HMRC has not reported on any cases going to the GAAR panel formed after the 2013 legislation, so it seems rather premature to bring in GAAR penalties.”

With the introduction of the common reporting standards between 90+ countries, tax evaders will be easier to identify.

A Criminal Offence

In addition, we now have a new criminal offence which removes the need to prove ‘intent’ when prosecuting someone for failing to declare offshore income and gains.

The government will introduce a new criminal offence that removes the need to prove intent for the most serious cases of failing to declare offshore income and gains. (Finance Bill 2016)

“The Chancellor is standing firm on the tougher measures announced previously and will press ahead with the new criminal offence which removes the need to prove ‘intent’ when prosecuting someone for failing to declare offshore income and gains,” says Rachael Griffin, financial planning expert, Old Mutual Wealth.

Riches says that while she fully supports HMRC cracking down on tax evasion, “the proposals aired earlier this year included some unwelcome provisions in that they seemed to lack sufficient safeguards for businesses inadvertently involved in providing a service to an evader.”

Riches argues there must be an element of dishonesty involved to be caught. The detail will need to be examined extremely carefully.

Additionally, the government has announced its continued commitment to tackle tax avoidance, with the introduction of tough new measures for those who ‘persistently enter into tax avoidance schemes that are defeated by HMRC’.

This will include special reporting requirements, surcharges, restrictions on access to tax relief and ‘naming and shaming’ of serial avoiders.

The government is also widening the Promoters of Tax Avoidance Schemes (POTAS) regime, by bringing in promoters whose schemes are regularly defeated by HMRC.

“The GAAR and accelerated payment notices has already had a significant impact on this area. However, the Government has now made it clear that it will not stop there and plans to make unsuccessful tax avoidance schemes commercially unviable,” says Riches.