Categorized | ir35 rules

Are HMRC’s offshore tax evasion targets within range?

Both contractors, and also now culpable accountants, face a ‘tsunami’ of new legislation in the wake of the government’s head-down-into-the-wind pursuit of tax evasion.

Yes, the focus of HMRC‘s reawakened vigour will be on offshore trusts. But other hints that the Chancellor dropped regarding the Revenue’s new powers are worth putting on record, here.

Tax Evasion: the background

In 2013’s Autumn Statement, Chancellor Osborne pledged that the fight against tax evasion would raise £9bn for the Exchequer over five years.

In the most recent Autumn Statement, that changed. The Chancellor pencilled in ‘over £5bn’ as the figure the tax man hoped to realise with tougher tax regulation. That target now has a more definitive £7.2bn attributed it.

In the recent summer (emergency) budget, he pledged £750M to HMRC to help make this happen. The thought process here is that these extra funds will ‘name and shame’ three times the amount of businesses/individuals using offshore trusts, thus help realise that goal.

So, yes, the government means business in tackling evasion. We get that. But what we’re not convinced about is how it will ring the changes or even if it realises the scope and scale of the problem.

The disparity of the figures that the Chancellor has banded about over a short two-year period is a real concern. That and the inability of The Revenue to cope with even the smallest of IR35 cases in an efficient and honest manner makes us doubt if the government knows:

  • either how much extra tax, if any, their redoubled (or -trebled) efforts will generate;
  • or what the cost of reaching those targets (assuming that at least one of them is right) will be to the Exchequer, thus the taxpayer.

What do know we know for certain?

Despite the ambiguity surrounding results versus costs, there are several pointers we can take into account for sure. These can help keep our clients outside IR35 or SDC, should that eventually succeed the 15-year old Intermediaries’ Legislation, as many now begin to believe.

First, without absolute (and some may irrefutable) ‘reasonable excuse’, contractors can no longer claim ignorance of tax laws or accidental evasion. Furthermore, any third party found ‘aiding and abetting’ tax evasion will also be for the high jump.

Forget global disclosures, which we’ll touch upon in a second. Contractors, freelancers and independent professionals from all walks of life need to be 100% honest with their accountants. The lines are getting so blurred, I heard even the OTS have created an account with Specsavers. 😉

Is offshore definitely off limits, now?

We also know that the disclosure of information from tax havens is getting ever closer. Those who manage contractor payment structures via offshore trusts are seeing loopholes close wherever they look:

  • from 2016, HMRC will have access to tax information on Guernsey, Jersey and the Isle of Man;
  • a year later, the global collaboration for tax data will begin, almost 100 countries making up that collaborative body;
  • and the get out of jail free card, the Liechtenstein Disclosure Facility, is valid only until the end of the year.

If you’re working through an umbrella company, be certain of the way they pay you. Ignorance is no longer a defence, nor has never been a good one.

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