Tax investigations helping you to help your clients. 18 October 2013

Transcription

1 Tax investigations helping you to help your clients 18 October 2013

2 Agenda Introduction Eric Hindson, Partner, PKF Littlejohn International overview Ross Welland, Tax partner, PKF Littlejohn Investigations and enquiries Ian Gadie, Business tax manager, PKF Littlejohn Case studies Kevin Igoe, Managing Director, Professional Fee Protection Q&A Conclusion & close - Eric Hindson

3 International Overview Ross Welland

4 G8 Lough Erne June Tax authorities across the world should automatically share information to fight the scourge of tax evasion. 3. Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily.

5 G20 September 2013 OECD progress report Model competent authority agreement for automatic information exchange available at the end 2013 Detailed Guidance available available early 2014 G20 automatic exchange of information by the end 2015

6 Exchange of Information (1) FATCA (Foreign Account Tax Compliance Act) US legislation Affects all financial institutions Report on US accounts to US or face withholding tax Reciprocal information exchange?

7 Exchange of Information (2) Channel Isles/IOM Information exchange agreements signed Other crown dependencies to follow? Multi governmental agreements (UK/France/Italy/Germany/Spain) Swiss agreement Tax haven double tax and information exchange agreements

8 Implications Increase in HMRC investigations Increase in investigations by non UK revenue Need to deal with investigations across several countries?

9 Dealing with the issues Liechtenstein disclosure facility Swiss agreement Isle of Man/Jersey/Guernsey disclosure facilities

10 Investigations and enquiries Ian Gadie

11 Contents 1. Self Assessment Enquiries 2. Business Records Checks 3. COP 9 4. Penalties

12 Self Assessment Enquiries Individual, trusts, partnerships S9A TMA 1970 COP 11 Types of enquiries full or aspect Risk based selection Business Non-business - Accounting records - Tax relief claims - Multiple income sources overseas sources - Capital Gains and claims to relief Random selection

13 Self Assessment Enquiries Individual, trusts, partnerships (continued) Full enquiries - Address significant risks of error - Risk of Tax Return being fundamentally incorrect Aspect enquiries Specific part(s) of the Tax Return - Technical issues reliefs claimed - Other information provided to HMRC gives reason to believe Tax Return incorrect

14 Self Assessment Enquiries Corporation Tax Self Assessment Enquiry into company Tax Return Tax Return includes financial statements, tax computations and other supporting documents and calculations, claims or elections Process of enquiry covered by Compliance Checks factsheets CCFS1a sent to company with letter informing the company that an enquiry has been opened Compliance Checks Compliance Checks system covers CT, CIS, IT, PAYE, VAT, IPT, SDLT, SDRT, PRT, LT and aggregates and climate change levies SA and CTSA enquiries can lead on to PAYE and VAT enquiries etc Can also lead on to COP9 and COP8 investigations

15 Business Records Checks Pilot programme started April 2011 Focus on SMEs Approximately 1/3 of checks found some issue, of which 10% serious New approach from November 2012 Better targeted and linked to wider education and support activities Customers most likely to be at risk contacted by letter and complete telephone questionnaire Outcomes - No further action - Self help education options - Referred for a BRC visit

16 COP 9 HMRC investigations where we suspect tax fraud HMRC reserve discretion to pursue a criminal investigation with view to prosecution where it is considered necessary and appropriate If no criminal investigation use COP 9 instead Under COP 9 given opportunity to make a complete and accurate disclosure of all irregularities If fail to make a Full Disclosure of tax frauds committed HMRC reserves right to commence a criminal investigation with view to prosecution False or misleading statements/documents made by Recipient of COP 9 may result in a separate criminal investigation

17 COP 9 HMRC investigations where we suspect tax fraud Why a COP 9 investigation opened? HMRC hold evidence which leads them to suspect a tax fraud committed Follow on from SA, CTSA or other Compliance Check Recipient best advised to cooperate fully and seek independent professional advice

18 COP 9 HMRC investigations where we suspect tax fraud Contractual Disclosure Facility (CDF) New procedure from 9 January 2012 Full admission of tax irregularities Standard acceptance letter attached to CDF offer Outline disclosure of tax frauds Above to be submitted within 60 days

19 COP 9 HMRC investigations where we suspect tax fraud Formal disclosure Accurate disclosure of all tax irregularities Certified statements of assets and liabilities Disclosure of all bank accounts and credit cards operated Timescale for completion to be agreed with HMRC Regularly inform HMRC of progress meetings at request of HMRC

20 COP 9 HMRC investigations where we suspect tax fraud Conclusion of investigation Agree settlement, tax interest and penalties Certificates of Full Disclosure Have stopped any fraudulent activities or other tax irregularities immediately Assurances on change of behaviour Subsequent check to make sure Likely tax affairs dealt with under programme for managing deliberate defaulters Pay the settlement (less any payments on account)

21 COP 9 HMRC investigations where we suspect tax fraud Publishing details of deliberate defaulters Deterrent effect Encourage disclosure both before and during an enquiry HMRC cannot publish if unprompted disclosure and either no enquiry opened or if opened nothing else found HMRC cannot publish if prompted disclosure, but after enquiry opened full details of wrongdoing provided and maximum assistance, as a result maximum penalty reduction being given

22 COP 9 HMRC investigations where we suspect tax fraud Publishing details of deliberate defaulters (continued) Publication questions Is it a relevant penalty? Deliberate inaccuracy /failure wrongdoing Does it relate to a period after 1 April 2010? Was penalty charged as a consequences of an HMRC investigation? Is it a qualifying relative penalty? Has maximum penalty reduction been given? Does potential lost revenue exceed 25,000?

23 COP 9 HMRC investigations where we suspect tax fraud Publishing details of deliberate defaulters (continued) Publication questions If all 5 answers are yes HMRC may publish Refer case to specialist team To be fair and consistent, we aim to publish the details of every person, company or other kind of organisation where the answer to all five publication questions is yes. We will only decide not to publish in exceptional circumstances (cc/fs13 August 2012)

24 Penalties Old regime Errors in Tax Returns that cover a period commencing before 1 April 2008 if Tax Return was due to be submitted before 1 April 2009 (e.g. SA Tax Returns year ended 5 April 2008 and earlier) Failure to notify liability to tax that happened before 1 April 2010 New regime After the above

25 Penalties Old regime Fraudulently or negligently making an incorrect return Maximum penalty tax lost due to actions (100%) Mitigation of penalty Disclosure % Co-operation - up to 40% Seriousness - up to 40%

26 Penalties New regime Degrees of culpability Disclosure 6 penalty ranges Type of behaviour Unprompted disclosure Prompted disclosure Reasonable care No penalty No penalty Careless 0-30% 15-30% Deliberate 20-70% 35-70% Deliberate and concealed % %

27 Penalties New regime Higher penalty for certain offshore matters giving rise to Income Tax or Capital Gains Tax for 2011/2012 onwards Levels of penalty dependent on territory in which non-compliance occurred 3 categories of countries, ranking according to information exchange agreements and other forms of tax cooperation Category 1 normal penalty regime

28 Penalties Category 2 Type of behaviour Unprompted disclosure Prompted disclosure Reasonable care No penalty No penalty Careless 0-45% % Deliberate % % Deliberate and concealed % %

29 Penalties Category 3 Type of behaviour Unprompted disclosure Prompted disclosure Reasonable care No penalty No penalty Careless 0-60% 30-60% Deliberate % % Deliberate and concealed % %

30 Penalties Determining type of behaviour and appropriate penalty category Reasonable care Expected to make a correct and complete return, but need to take into account a person s abilities and circumstances Careless Failure to take reasonable care Poor record keeping careless Continued poor record keeping after being advised by HMRC careless possibly deliberate

31 Penalties Determining type of behaviour and appropriate penalty category (continued) Deliberate Knew that document submitted to HMRC was inaccurate Deliberate and concealed Concealment of deliberate inaccuracy Cash taken as pocket money and not recorded in turnover, during Compliance Check false invoices produced to support takings figures

32 Penalties Reduction in penalty for quality of disclosure Telling - up to 30% Helping - up to 40% Giving (access to records) - up to 30% Quality of disclosure determined by Timing Nature Extent

33 Penalties Example careless inaccuracy with prompted disclosure potential lost revenue 3,000 Penalty range % Quality of disclosure reduction - 70% Rate of penalty = 15% % reduction - 15% x 70% = 10.5% Penalty charged = 19.5% - 3,000 x 19.5% = 585

34 Penalties Suspended penalties Only for careless inaccuracies HMRC set conditions to help avoid penalties in future HMRC believe conditions can be met Maximum suspension 2 years If charged with another inaccuracy penalty during suspension period, suspended penalty becomes payable

35 Penalties Special reduction Staying a penalty Agreeing a compromise in relation to proceeding for a penalty Special circumstances Uncommon or exceptional Penalty law produces a result contrary to compliance intention

36 Penalties Directors/company secretary liable to pay a company s penalty Only for deliberate inaccuracy Penalty is attributable to them and they have gained personally or company insolvent If company pays, HMRC will not ask Directors or company secretary to pay

37 Case Studies Kevin Igoe CTA Professional Fee Protection Experts in Tax Investigations Insurance

38 The Tax Gap The difference between tax due and tax actually collected: 35 BILLION Experts in Tax Investigations Insurance

39 Latest Approach to Compliance Tax Evasion V Tax Avoidance Experts in Tax Investigations Insurance

40 HMRC Tax Gap 35% SME s 60% large business 46% Evasion/criminal activity/hidden economy 14% Avoidance Experts in Tax Investigations Insurance

41 CASE STUDIES Experts in Tax Investigations Insurance

42 Useful Tips Assume nothing! Establish Enquiry type and authority Reasonably Required Ask client/brief client Who is conducting enquiry Complain Disclose Penalties from day 1 Experts in Tax Investigations Insurance

43 Useful Tips ADR Take initiative Negotiate CHALLENGE Experts in Tax Investigations Insurance

44 Kevin Igoe CTA Professional Fee Protection Experts in Tax Investigations Insurance