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HMRC Powers and Investigations Association of Accounting Technicians Birmingham branch 9 May 2012

HMRC Powers and Investigations Association of Accounting Technicians Birmingham branch 9 May 2012. Gary Ashford RSM Tenon Head of Tax Investigations and Dispute Resolution. Agenda. Update on tax administration/powers and penalties Latest trends in HMRC activity Changes to Code of Practice 9

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HMRC Powers and Investigations Association of Accounting Technicians Birmingham branch 9 May 2012

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  1. HMRC Powers and InvestigationsAssociation of Accounting Technicians Birmingham branch9 May 2012 Gary Ashford RSM Tenon Head of Tax Investigations and Dispute Resolution

  2. Agenda • Update on tax administration/powers and penalties • Latest trends in HMRC activity • Changes to Code of Practice 9 • Liechtenstein/UK agreement • Swiss/uk agreement

  3. Tax Gap • 2008 £40b • 2009 £35b • Plans to reduce by £7b pa!

  4. Source- HMRC Protecting Tax Revenues 2009

  5. HMRC’s Powers

  6. HMRC Powers • Upgraded • Penalties • Information and inspection powers • Assessing time limits • Publishing Names of Deliberate Defaulters • Records?

  7. Penalties for inaccuracies

  8. HMRC’s Penalty Regime – Sch 24, FA 2007, offshore penalties, category 2Offshore Income – s35 and Sch 10 FA 2010, amends Sch 24 FA 2007

  9. HMRC’s Penalty Regime – Sch 24, FA 2007, offshore penalties, category 3Offshore Income – s35 and Sch 10 FA 2010, amends Sch 24 FA 2007

  10. HMRC Information and inspection powers • Criminal Information powers (PACE 1984) • Civil Powers • s113/114 and Schedule 36 FA 2008 • s86 and Schedule 23 FA 2011- Data gathering powers (from 1 April 2012)

  11. HMRC’s Information & Inspection Powers, s113, 114 & Schedule 36 FA 2008 • Taxpayer notice (Para 1): requires a person to provide information or produce documents reasonably required for the purpose of checkingtheir tax position • Third party notice (Para 2): another person’s tax position • Unnamed third party (Para 5) • “Tax position” (Para 64): person’s position as regards any tax includes: • past, present and future liabilities • “Tax” (Para 63) is IT, CGT, CT, VAT and relevant foreign tax

  12. HMRC’s Information & Inspection Powers, Schedule 36 FA 2008 • Right of appeal unless • Pre approved by tax tribunal, or • Statutory records (records required to keep by the Taxes Acts) • Onerous (if unnamed third party)

  13. HMRC’s Information & Inspection Powers, Schedule 36 FA 2008 • Safeguards • Request must be reasonable and proportionate • Must be in person’s possession or power • Documents subject to appeal process • Journalistic material • Personal records • Documents over 6 years old at date of notice • Documents over 4 years before deceased person’s death • Privilege/Auditors/Advisers papers

  14. HMRC’s Data Gathering Powers Data gathering powers (1 April 2012) • Relevant data holder • Relevant data • Cannot be used to check tax position of data holder • Replaces many of the old information gathering powers; s16, 17, 18 etc

  15. HMRC’s Civil Inspection Powers • “An officer…may enter business premises and inspect: • the premises • business assets on those premises • business documents on those premises If the inspection is reasonably required for the purpose of checking that person’s tax position” • Paragraph 10, Schedule 36, FA 2008

  16. HMRC’s Civil Inspection Powers • Inspection powers • by prior agreement • 7 days notice • announced or unannounced • approvals – authorised officer & First Tier Tribunal

  17. HMRC’s Inspection Powers • Inspection powers – restrictions & defences • that person • enter premises – not force entry • inspect only – not search or interview • Inspect vs search: • “you are walking along a corridor with a representative of the business and come to a door in the corridor. He goes through it but the door slips and closes in front of you. You may touch the door to open it and continue” • “You are shown into a room in which the books, records and invoices you asked for have been placed on a table for your inspection. You are allowed to open the files and boxes of records that have been collected. You are allowed to walk around and look at the pictures on the wall. You are not allowed to open the filing cabinet in the corner just to see what is in it” • CH25160

  18. HMRC’s Information and civil inspection Powers • Penalties for non compliance • £300 • £60 per day • Scope to link to tax in special circumstances

  19. Assessing time limits, s118 & Sch 39 FA 2008 amends TMA 1970 • General • Routine self assessment • 4 years from the end of year of assessment (S34, amended by Sch 39) • Person’s self assessment to displace HMRC determination • Later of 3 years from filing date and 12 months from date of determination (S28c (5) TMA 1970, amended by Sch 39) • HMRC determination where notice to make a return but no return delivered • 3 years from filing date (S28 (5) TMA 1970, amended by Sch 39)

  20. Assessing time limits • Discovery • Not careless • 4 years from the end of the year of assessment, (S34 TMA 1970, amended by Sch 39) • Careless • 6 years from the end of the year of assessment, (S36 (1) TMA 1970, amended by Sch 39)

  21. Assessing time limits • Deliberate, • 20 years from the end of the year of assessment, (S36 (1A) TMA 1970, amended by Sch 39)

  22. Assessing time limits • Failure to notify • Reasonable excuse • 4 years from the end of the year of assessment • No reasonable excuse or unreasonable delay • 20 years from the end of the year of assessment (for 2008/9 and earlier tax must be attributable to fraud or neglect)

  23. Assessing time limits • Claims and elections • IT/CGT- s42 TMA 1970 • CTSA - Part VII Schedule 18 FA 1998 (part VIII Group relief, part IX Capital allowances)

  24. Assessing time limits • Claims and elections General • The general rule, as set out in s43(1) is that a claim must be made within 4 years from the end of the year of assessment to which it relates. • For example, a claim for 2008-09 must be made by 5 April 2013. • Where a person makes a claim for a year of assessment in respect of which they have not been given a notice under TMA 1970 Section 8 (personal return), TMA 1970 Section 8A, (trustee’s return), TMA 1970 Section 12AA (partnership return) • Within 1 year of the end of the year of assessment, the time limit for making the claim is 5 years from the 31 January next following the year of assessment. From 1 April 2012 this time limit will change to 4 years from the end of the year of assessment. • But the Taxes Acts may prescribe a longer or shorter period in respect of certain claims and if that is so, that time limit overrides the general rule of s43(1).

  25. Assessing time limits • Late Claims and elections • Overpayment relief • 4 years of the end of the tax year • Transitional rules for 2004/5 and 2005/6 if claim relates to SA return and notice to make return was given more than 12 months after end of tax year (then 31 January 2011 and 31 January 2012) • Amount assessed which should not have been • Amount paid which was not due

  26. Assessing time limits Extended Time limits- Consequential Claims Where HMRC issue a discovery assessment or amend SA return in closure notice scope to make late claims (limited to the extent of the discovery assessment or amendment) Non Culpable (Claims and elections) s42/43 TMA 1970 (Para 61- 64 Schedule 18 FA 1998) - Can make claim or election within 12 months from end of year of assessment in which assessment or amendment made Culpable - Can make claim within 12 months from end of year of assessment in which assessment or amendment made s36 TMA 1970

  27. Publishing Names of Deliberate Defaulterss94 FA 2009 Cases settled on or after 1st April 2010 (2011 Tax return) Must be: tax lost £25,000 or more “deliberate” and “deliberate and concealed” cases failed to disclose during compliance check Did not obtain full reduction for quality of disclosure If disclose – exempted

  28. Latest trends

  29. Latest trends • Offshore Coordination Unit • Tax Evasion Taskforces • COP9

  30. Changes to Code of Practice 9Contractual Disclosure Facility

  31. Background to Contractual Disclosure Facility Code of Practice 9 (cases of suspected serious fraud) • Pre Gill & Gill • PACE • Civil Investigation of Fraud • Contractual Disclosure Facility

  32. HMRC’s Criminal Investigation Policy “HMRC's aim is to secure the highest level of compliance with the law and regulations governing direct and indirect taxes and other regimes for which they are responsible. Criminal investigation, with a view to prosecution by the Revenue and Customs Prosecutions Office (RCPO) in England and Wales – or the appropriate prosecuting authority in Scotland and Northern Ireland, is an important part of HMRC's overall enforcement strategy. It is HMRC's policy to deal with fraud by use of the cost effective Civil Investigation of Fraud (CIF) procedures, wherever appropriate. Criminal Investigation will be reserved for cases where HMRC needs to send a strong deterrent message or where the conduct involved is such that only a criminal sanction is appropriate. However, HMRC reserves complete discretion to conduct a criminal investigation in any case and to carry out these investigations across a range of offences and in all the areas for which the Commissioners of HMRC have responsibility. Continued

  33. HMRC Policy on Tax Fraud Continued • Examples of the kind of circumstances in which HMRC will generally consider commencing a criminal, rather than civil investigations are: • In cases of organised criminal gangs attacking the tax system or systematic frauds where losses represents a serious threat to the tax base, including conspiracy; • Where an individual holds a position of trust or responsibility; • Where materially false statements are made or materially false documents are provided in the course of a civil investigation; • Where, pursuing an avoidance scheme, reliance is placed on a false or altered document or such reliance or material facts are misrepresented to enhance the credibility of a scheme; • Where deliberate concealment, deception, conspiracy or corruption is suspected; • In cases involving the use of false or forged documents; • In cases involving importation or exportation breaching prohibitions and restrictions; Continued

  34. HMRC Policy on Tax Fraud Continued • In cases involving money laundering with particular focus on advisors, accountants, solicitors and others acting in a ‘professional’ capacity who provide the means to put tainted money out of reach of law enforcement; • Where the perpetrator has committed previous offences / there is a repeated course of unlawful conduct or previous civil action; • In cases involving theft, or the misuse or unlawful destruction of HMRC documents; • Where there is evidence of assault on, threats to, or the impersonation of HMRC officials; • Where there is a link to suspected wider criminality, whether domestic or international, involving offences not under the administration of HMRC. • When considering whether a case should be investigated under the Civil Investigation of Fraud procedures or is the subject of a criminal investigation, one factor will be whether the taxpayer(s) has made a complete and unprompted disclosure of the offences committed. • However, there are certain fiscal offences where HMRC will not usually adopt the Civil Investigation of Fraud approach. Examples of these are: • VAT Missing Trader Intra-Community (MTIC) Fraud • Vat 'Bogus' registration repayment fraud • Organised Tax Credit fraud”

  35. Contractual Disclosure Facility (CDF) • New approach from 31 January 2012

  36. Contractual Disclosure Facility (CDF) • HMRC’s undertaking • In exchange for taxpayer’s undertaking, HMRC agrees not to pursue a criminal investigation into the tax frauds the taxpayer discloses • Taxpayer’s undertaking • Undertakes to make a full disclosure of all tax irregularities under the terms of the CDF. • 1st stage – a valid outline disclosure of the tax frauds within 60 days! • 2nd stage – a statement certifying a full complete and accurate disclosure of all tax irregularities has been made together with • Certified statements of Assets & Liabilities, Bank accounts, Credit, Charge etc. Card accounts

  37. Contractual Disclosure Facility (CDF) Outline Disclosure Form – description of fraud • What the person did • How they did it • The involvement of others (names, relationships, roles and the capacity in which you acted) • Period of irregularities “You must complete all of the form as directed … to ensure your outline disclosure is valid”

  38. Contractual Disclosure Facility (CDF) Risks of criminal investigation • Non-cooperation • Denial • Acceptance letter but no outline disclosure • Incomplete outline disclosure • False statements made or false documents submitted • Any false formal disclosure document submitted

  39. Contractual Disclosure Facility (CDF) HMRC Investigation of Fraud Issue Letter • Only suitable for taxpayers: • Who have committed tax fraud • Who wish to fully disclose the tax frauds • Who will work with HMRC to put their tax affairs in order (including paying tax, interest and penalties due) • Who stop any continuing fraud immediately • Not suitable for taxpayers who want to disclose only careless errors, mistakes or avoidance arrangements- but can be swept up. • Will we see simpler/smaller COP9 cases?

  40. The Liechtenstein/UK agreement

  41. Liechtenstein/UK agreement • Tax Information Exchange Agreement signed 11 August 2009 • 5 year Tax Compliance Assistance programme • 5 year Disclosure Programme for UK (extended) • Started 1 September 2009 and now ends 5 April 2016 • 10% penalty (to April 2009), 20% thereafter • 40% composite rate available but with loss of exemptions and allowances • Excludes periods prior to 1 April 1999 • No criminal investigation

  42. Who does it cover? Individuals, companies, trusts, partnerships…any legal person Who cannot participate Memorandum of Understanding Preamble paragraph E Any person under (serious) investigation by HMRC b) Any person who was previously under investigation by HMRC and who knowingly did not disclose their interest in any relevant property can participate BUT will not be able to benefit from the limited penalty c) Any person contacted under the ODF or NDO can participate BUT will not benefit from the limited penalty d) Any person who participates in the disclosure facility and has a bank account or financial account, outside the UK or Liechtenstein which was opened through a UK branch or agency will not be eligible for the shorter period, the fixed penalty and the Composite Rate Option NOT JUST FOR THOSE WITH ASSETS IN LIECHTENSTEIN

  43. What is happening in Liechtenstein? Financial Intermediary legislation (September 2010) Letters to UK clients 31 March 2012 If contacted by financial intermediary - 18 months to demonstrate compliance Failure to demonstrate compliance Closure of the account or Other sanctions including prospect of financial penalty

  44. Be careful! Seeing Special Investigations taking a tougher stance!

  45. Tax Cooperation agreement between Switzerland and UK

  46. The agreement • Published 6 October 2011 • Protocol 20 March 2012 • UK Finance Bill 2012 • Further amendments, following changes to Swiss/German agreement

  47. The basics • Regularisation of the past • Withholding tax for the future • Enhanced cooperation by way of exchange of information

  48. Regularisation of the past • One off payment (21% - 34%(up to 41%)) • Voluntary Disclosure

  49. One off payment • Relevant persons must have held relevant assets with Swiss Paying agent at 31 December 2010 and 31 December 2012 • Schedule 1 of agreement (and protocol 18 April 2012) set out the formula

  50. Definitions • Relevant Person • Individual resident (according to Swiss due diligence obligations) in UK who is account or deposit holder or beneficial owner of assets or domiciliary company, insurance wrapper or another individual by means of an account with Swiss Paying Agent • Not relevant person re assets in trusts, foundations where cannot ascertain beneficial ownership because is discretionary

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