Precisely how “new” the 200-strong team of investigators and specialists described in a press release on Monday actually is may be debated, some HMRC-watchers point out, noting that it would be part of a major crackdown announced last December that was forecast to bring in an extra £7bn annually in tax revenue. In September, at the Liberal Democrats’ annual conference, chief secretary to the Treasury Danny Alexander announced the creation of a new HMRC "affluent team", whose job it would be to focus on the UK’s wealthiest taxpayers.
Nevertheless, tax experts agree that HMRC’s latest announcement is entirely in keeping with the tax authority’s other recent offshore initiatives, such as its recent deal with Switzerland, and various information exchange agreements.
Indeed, what is surprising, noted John Whiting, tax policy director for the London-based Chartered Institute of Taxation, is not that HMRC is coming after individuals who own foreign property and thus may enjoy income from it that they do not declare, but that it has not done so previously.
“The [matter] came up at a CIOT meeting on Monday and there was, if anything, surprise that [they] haven’t pursued this route before, rather than surprise that they were doing it now,” Whiting said.
“They have, after all, tackled rents not being declared on UK properties in recent years.
“What it demonstrates is that HMRC are becoming more sophisticated in their efforts to tackle those who do not pay their dues.
“In many ways they have to be, because they have fewer people and need to use their own resources carefully. But they are also modernising and using the wider resources that are available with today’s technology.
“The message HMRC are trying to give is that there is no hiding place from the taxman.”
Commodity traders, offshore account holders next
According to HMRC, the “newly-formed team” would bring together experts who would make use of “new and innovative risk assessment techniques” to identify areas where wealthy individuals are avoiding and evading taxes and duties. David Gauke, exchequer secretary to the Treasury, said the new unit would raise £560m over the next few years.
Wealthy individuals who own land and property abroad would be one of the first groups to be targeted, followed, according to the HMRC press release, by commodity traders and people holding offshore accounts.
Andrew Watt, managing director of tax disputes and investigations for Alvarez & Marsal Taxand UK, noted that the latest HMRC crackdown announcement was “totally consistent” with its “commendable focus on the use of offshore structures to evade tax”, but he was sceptical that it would yield quite the sums forecast, even if “an element of double-counting” in the figures were allowed for.
“The Liechtenstein Disclosure Facility has so far yielded £140m since it was launched in August 2009. [So] the notion that this drive against UK resident landlords with properties offshore might give rise to additional yield of £560m by 2015 is optimistic to say the very least, particularly as it is going to be dependent to some extent on HMRC extracting information from foreign land registries.”
Watt also noted that there was a potential danger that HMRC “may be taking its eye off the ball as far as domestic evasion is concerned”.
He added: “The most recent campaign against tutors and coaches, for example, is unlikely to have any major deterrent effect. I believe that if the Revenue is determined to improve compliance, something more high profile and eye-catching is called for."
‘Potential issues’
Prudential technical manager Gerry Brown warned that property owners who have not complied with the tax regimes in those countries in which their property is situated could face potential issues, if they have failed to ensure that their tax situation is correct.
“Double tax relief is available, but only where both countries charge tax," he noted.
On the other hand, Brown said he questioned whether HMRC had sufficient resources to conduct a significant number of in-depth investigations, even given its recent hirings of investigators and ring-fencing of its compliance budget, given the number of campaigns it has launched recently.
John Cassidy, tax investigations partner at PKF(UK), noted that the Revenue’s "new" focus on offshore properties was a natural follow-on from its recent pursuit of offshore bank accounts and similar holdings.
"For example, if [an individual] has a holiday home, quite apart from their rental income, the authorities may be interested in discovering how the purchase was funded; for example, was money from a Swiss bank account involved."
