AegisTax - UK tax investigation and tax recovery advice

Social Media Data Used as Evidence in Tax Investigations

aegistax — Fri, 13 May 2011 16:44:00 GMT

It has recently emerged that the German Finanzamt has been using social media sites as a source of information for ongoing investigations, looking keenly at individuals’ status, occupation and location for information that may deviate from what has been reported on tax returns and residency statements. Often, discrepancies between the reported and the 'friends-only' information published on social sites can be a useful tool for the authorities if suspicions have been aroused.

This really shouldn't come as a surprise. In Europe it's not unusual for the authorities to contact landlords to confirm whether an individual truly lives at their stated address and in the UK sources such as phone records and travel tickets are routinely used in residency cases. The use of this new resource should simply be seen as an extension of this practice; any available means will be used to verify the information provided by taxpayers and challenge those who decide not to be truthful in their dealings with the tax authority.

This also serves as a reminder that the default settings on most social media websites are very open; if you are not willing to share any aspect of what you have published with people you don't know you should look to go through your settings and make sure that these match your expectations.

Tax rules, interpretations and priorities change from country to country. Before you make a move to a foreign country, you should always seek professional advice from a local expert and ensure that your strategy makes sense in light of local legislation.

Tax Advice from Accountants not Protected by Legal Privilege

aegistax — Fri, 15 Oct 2010 13:13:00 GMT

In a setback for the accountancy profession, the UK Court of Appeal has ruled that tax advice provided by accountants to their clients is not protected by legal professional privilege (LPP). LPP protects all communications between professional legal advisers and their clients from being disclosed without the permission of the client. The right to claim LPP is subject to strict conditions, because it deprives HMRC, tax tribunals and the courts of relevant evidence.

Lawyers representing PricewaterhouseCoopers and Prudential had argued that LPP should apply equally to tax advisers who are not legally qualified but Lord Justice Lloyd decided that, since the legislation distinguishes between advice received from solicitors or barristers and that received from other sources, only Parliament had the authority to extend the application of LPP.

Given the obligation of accountants to report to the authorities any suspicions they may have regarding tax irregularities, the ruling effectively discourages clients from asking their accountants for advice if they have any doubts about their tax affairs. A client taking such advice from his appointed legal adviser would not risk such a report being made. Michael Izza, chief executive of the ICAEW, was disappointed with the High court ruling saying "Taxpayers should be able to seek advice from those they believe are best suited to provide that advice, whether that be from a lawyer or a professionally qualified chartered accountant". The Institute will now consider the next steps in its campaign to extend LPP to tax advisers.

Unknown Bank Account

aegistax — Mon, 13 Sep 2010 11:44:24 GMT

A UK resident was surprised to hear from the manager of an offshore bank that an account containing £800,000 might belong to her. He explained that the account had belonged to her late husband and he wanted to warn her that, because of the lack of activity, it was about to be declared dormant.

The man's widow was completely unaware of the existence of the account and extremely worried about her liabilities because she did not know where the money had come from and because it had not been declared as part of the man's estate. At her request, AegisTax analysed the situation with the aim of regularising the situation while minimising any liabilities. The position presented to and accepted by HMRC based on the advice given by AegisTax resulted in:

The case being settled with a single payment of £45,000 to HMRC.
Future inheritance tax savings of £200,000 when the estate passes to her children.

AegisTax can provide confidential advice on tax issues of all kinds and can use its wide experience to resolve problems effectively and efficiently.

UK - Six million revised tax calculations from HMRC

aegistax — Thu, 09 Sep 2010 14:19:02 GMT

The UK tax authority, HMRC, is preparing for a mass of enquiries after having sent out new tax calculations.

The first 45,000 of about six million taxpayers will receive letters informing them that they have paid the wrong amount of tax; the remaining new tax calculations will be posted by the end of the year. The mistakes were brought to light following the introduction of a new computer system.

Refunds and additional tax will generally be recovered by a tax code change in the following financial year. However, if the amount due is over £ 2,000, taxpayers could be asked to pay a lump sum.

For those who receive the letters tax experts strongly recommend checking the documents to make sure the new calculations correlate properly to their personal and professional situation. In some case it may be possible to contest claims for additional payments.

If a mistake has been made or if they want to challenge the new calculation taxpayers can get in touch with their tax office directly but would be well advised to obtain independent professional advice before taking any action.

Tax Exile Wanting to Return Home

aegistax — Thu, 26 Aug 2010 16:32:00 GMT

A client living outside the UK had been under investigation by HMRC relating to unpaid tax on offshore assets in excess of £1 million. The client wanted to return to the UK but, worried about the risk of prosecution, turned to AegisTax for help. Research by AegisTax, including information obtained from HMRC, revealed that a large proportion of the tax claimed by HMRC related to interest earned while he was resident in Ireland and relied on interpretations of the law which have subsequently changed. HMRC argued that the change in interpretation was not applicable retrospectively and maintained their claim.

Basing their argument on, amongst other factors, Human Rights issues raised in Europe concerning HMRC's change of interpretation, AegisTax settled the case with HMRC on the following terms:

There would be no prosecution
The client would attend only one 30 minute interview with HMRC
A payment to HMRC of only £65,000 (due to HMRC's reluctance to take case to European Court)

AegisTax was then able to reassure the client that he could return home in the knowledge that his tax affairs were in order and that no further investigation would be carried out.

Accepting a Legacy may have Caused a Problem

aegistax — Thu, 26 Aug 2010 13:14:00 GMT

A UK-based client died leaving a legacy, from undisclosed Swiss assets, in favour of the mother of his child. The lady, who ran a business in the UK, was worried that HMRC would question the source of a £1 million legacy and begin a time-consuming investigation into her business affairs. She therefore was reluctant to accept the legacy.

The lady approached AegisTax whose tax investigation specialists then contacted HMRC, without mentioning the lady's name, and explained the situation. AegisTax were able to demonstrate that HMRC had no means available of identifying the undisclosed funds and therefore no way of raising an assessment. On providing an assurance to HMRC that the lady's personal and business tax affairs were up to date, AegisTax were able to negotiate an agreement with HMRC such that:

The mother was able to accept the legacy
No payment to HMRC was required
HMRC issued an letter to the (still unnamed) lady, with a confidential reference number, guaranteeing that there would be no investigation into her affairs as a result of accepting the legacy

This is just one example of how our ex-HMRC Advisors can communicate effectively with HMRC and produce solutions. If you have tax problems or an issue you want to discuss contact AegisTax today for a free, confidential initial assessment.

Gaines-Cooper takes UK Residence Case to Supreme Court

aegistax — Mon, 23 Aug 2010 13:54:00 GMT

In the latest instalment of this long-running saga Robert Gaines-Cooper, who is based in the Seychelles, now aims to challenge HMRC in the Supreme Court. Gaines-Cooper moved to the Seychelles in 1976 and took the steps necessary to become non-resident in the UK having taken professional advice based on the criteria, considered normal at the time, set out in HMRC's IR20 guidance.

Years later HMRC challenged his non-resident status and claimed taxes back to 1993 which now could amount to £30M. They based the challenge on their argument that he had not complied with an implied term in the IR20 guidance, that of making a distinct break with the UK. The challenge has subsequently been upheld by the Special Commissioners and by the Court of Appeal. Peter Vaines, who represents Gaines-Cooper, said: “When Mr Gaines-Cooper left the UK in 1976, he satisfied the precise requirements of IR20. However, he lost his appeal because HMRC successfully argued that there was an implied term which Mr Gaines-Cooper failed to satisfy – that he had not made a distinct break from the UK. The court held that this meant Mr Gaines-Cooper had to sever all family and social ties with the UK. Everybody has a different view about what this means and with such uncertainty it is difficult for it to be implied. If a term is to be implied, it needs to be certain.”

Mr Gaines-Cooper argues that it is wrong that HMRC should decide such issues retrospectively based on criteria which differ from those set out in their own guidance at the time: “I feel strongly that the lack of transparency in the UK tax system means that no taxpayer can rely on guidance from the UK tax authorities and, as a result, cannot rely on their advisers, even if their position has previously been accepted by HMRC. Moreover, HMRC’s aggressive approach assumes guilt and leaves the taxpayer with the inference that they have deliberately evaded tax. In my case, that is simply wrong."

The current confusion regarding the criteria for becoming non-resident potentially affects tens of thousands of Britons, and other nationals who have made a base in the UK, who haved lived or worked outside the UK in the last 20 years or so. Many, who will have assumed in good faith that they were non-resident based on professional advice and HMRC guidance, now face years of uncertainty and potentially large tax bills if a retroactive decision eventually goes against them. This must surely be another area to be examined by the Office for Tax Simplification, hopefully sooner rather than later, but in the interim tax professionals are urging anyone who has concerns about residency issues to take specialist advice as soon as possible.

Family Companies' Dividend Arrangements - Another Setback for HMRC

aegistax — Wed, 18 Aug 2010 10:22:00 GMT

HMRC have suffered another setback in their campaign against what they consider to be unjustified tax avoidance in family-owned companies. The First-Tier tribunal found against HMRC relating to an assessment against Mr Patmore of nearly £20'000 of tax on dividends paid to Mrs Patmore from their jointly-owned company. The dividends were immediately credited to Mr Patmore to set against outstanding purchase payments for the company.

While situations varied in individual companies and the amounts and types of shares issued to each party differed, the tribunal judge cited a precedent set in the Arctic Systems case that courts should take "a broad and realistic view" of such arrangements but was of the opinion that in this case HMRC had not done so. The judge ruled that "the tax assessments on Mr Patmore cannot stand".

An HMRC spokesman said the department is considering the judgment carefully before deciding on any further course of action. Such action may depend on the reviews of the taxation of small businesses to be conducted by the new Office for Tax Simplicification who will certainly be examining cases such as these and the uncertainty they cause.

In the meantime, it will be as important as ever for small companies to take the advice of experienced tax professionals when planning income distribution to shareholders.

Can I use the LDF even though I knew about the NDO or ODF?

The Admin — Sun, 15 Aug 2010 20:47:00 GMT

Yes. Provided the conditions of the LDF are met, previous knowledge of other incentives to disclose, such as the New Disclosure Opportunity or the Offshore Disclosure Facility, would not prevent you from using the LDF. However if you have previously been contacted by HMRC regarding disclosures or have previously made incomplete declarations during an investigation, penalties may be increased to 20% or 30%.

As with any disclosure of unpaid tax to HMRC, it is highly advisable to take professional advice to minimise the risk of criminal prosecution.

Will HMRC guarantee to avoid a criminal investigation?

The Admin — Sun, 15 Aug 2010 20:45:00 GMT

Yes. Provided that a qualifying LDF disclosure is full and accurate and if the source of the funds is not from criminal activity, HMRC will not start a criminal investigation for a tax-related offence. Criminal activity, in this respect, does not include tax evasion.

This guarantee will not apply to any undeclared income, assets or taxable events which are not included in the LDF disclosure.

Whatever the circumstances it is highly advisable to obtain expert professional advice before making any disclosure.