AAT & CIMA 11 September 2013 Tax Investigations Update David Pedley Grant Thornton UK LLP Nati

1. AAT & CIMA 11 September 2013 Tax Investigations Update David Pedley Grant Thornton UK LLP National Tax Investigations

2. Agenda • HMRC Activity • Tax Evasion • Offshore • HMRC Information Sources • HMRC Powers • Tax Avoidance • GAAR

3. Tax Investigations and Dispute Resolution • £900m reinvested into avoidance, evasion and criminal attacks – further £154m this year • Aim to yield further £22bn by 2014/15

4. HMRC Activity • Targeted Campaigns • Civil Investigation of Fraud - new "CDF" • LDF opportunities ; UK-Swiss deal • Criminal Prosecutions • Residence and domicile post 2008/09 • Disguised remuneration • Penalties for Tax Agents

5. Investigating Offices • Revenue & Customs Prosecuting Office (RCPO) • Specialist Investigations (SI) • Civil Investigation of Fraud (CIF) • Anti-Avoidance Group (AAG) • Large Business Office (LBO) - Risk & CRM's

6. Investigating Offices • Charities, Assets and Residence (CAR) • High Net Worth Unit (HNW) • Local HMRC offices (LBS) • Employer Compliance/VAT inspection teams • Revenue accountants

7. HMRC Activity • income recognition • provisions/estimates • work-in-progress • stock • valuations • debtors • status issues • director's loan accounts

8. HMRC Manual • "Where cash is received by a business and the proprietor or director has access to it, few willresist the temptation to pocket some of it"

9. Contractual Disclosure Facility • Streamlined process • 60 Days from receipt of letter to disclose • 6 months to prepare and submit report • Contractual buy in • Withdrawal of contract

10. Targetted Campaigns • Offshore • THP • PTSP • Tax Return Catch Up • Restaurants • E-traders • Private Tutors • Rag Trade

11. Criminal Prosecutions • HMRC policy • 1500 in 2013/14 • Up from 500 in 2010/11 • POCA

12. Offshore • Liechtenstein Disclosure Facility • Swiss/UK Treaty • Channel Islands • G8

13. Liechtenstein Disclosure Facility • Tax Information Exchange Agreement between UK and Liechtenstein • UK residents need to provide evidence to Liechtenstein intermediary of compliance with HMRC • Preferential disclosure terms • No name and shame • No prosecution • Runs until 5 April 2016

14. UK / Swiss agreement • Came into force on 1 January 2013 • affects all UK taxpayers with bank accounts in Switzerland • special arrangements for non-UK domiciled residents

15. UK / Swiss agreement

16. Domicile • If we can bring this into an enquiry and get a ruling it provides certainty going forward • Can we agree the status of various funds going forward - Clean Capital, Income, Gains, those dreaded mixed funds • Remittances - complex legislation

17. Disguised Remuneration • IT and NI not avoided or deferred where employees are provided with a reward or loan in connection with their employment • Punitive tax charge that can be higher than an equivalent charge under existing rules • Can arise where funds merely earmarked • Any individual receiving a reward from a trust or other vehicle • Not just EBTs • Not just tax planning schemes • P A Holdings Ltd

18. HMRC Information Sources • Mortgage Fraud - information to and from lenders • Connect Analytics

19. HMRC Information Sources • HSBC Geneva theft of data- HMRC will use what it has already got- Swiss agreement pledges that it won't use any stolen Swiss data in future

20. Penalties: reasonable care • Definition of "document" to be provided to HMRC includes "post, fax, email, telephone and otherwise" • Penalties will be taken on potential lost revenue, which will mean penalties on notional tax where losses restricted and timing differences • Reintroduction of "innocent error" with no penalty • Otherwise: staged penalties for defined behaviour patterns

21. Penalties: reasonable care • Opportunity to suspend penalties subject to HMRC conditions but only for offences of 'careless inaccuracy' • Corporate penalties may be imposed on management team • Reliance on agent as excuse?

22. Penalties: reasonable care • Advice taken from a professional advisorHanson v HMRCShakoor v HMRCBingham v HMRC • Alternative filing positions

23. Assessing powers

24. Penalties for Tax Agents • From 1 April 2013 • "Dishonest Conduct" with a view to bringing about a loss of tax. • Easier access to working papers • Tax geared penalties on agents • Naming and shaming for agents • Disclosure to professional bodies

25. Information requests • Information must be in power or possession of the recipient of the notice • "Reasonably required" to check person's tax position • Protection retained for audit papers, appeal documents, journalistic material and personal records - S12 PACE • Prudential Case • Private bank information - Beckwith v HMRC

26. Information requests • Example: December 23rd 2009, email from client to his solicitor acting on a conveyance:" Just a note to keep the file up to date. These minutes are purely for the record as no one was actually in the room for the meeting detailed in the enclosed Board Minutes. I am in UK with my family as usual as I never actually go to the Isle of Man"

27. Evasion v Avoidance • The blurring of the lines • HMRC constantly changing the law to close loopholes • Courts taking a "purposeful" test of Parliamentary Intention • Careless implementation

28. Evasion v Avoidance • Implementation • Penalties • Reliance on Tax Advice • GAAR

29. General Anti-Abuse Rule (the GAAR) • Risk areas: • - language vs. action • - scope of the GAAR • - the "double-reasonableness" test

30. General Anti-Abuse Rule (the GAAR) • Purpose - counteracting tax advantages arising from tax arrangements that are abusive • Taxes covered – IT, CT, CGT, IHT, SDLT, tax on enveloped buildings

31. General Anti-Abuse Rule (the GAAR) • Arrangements are tax arrangements if it is reasonable to conclude that obtaining a tax advantage was the ‘main purpose or one of the main purposes’ of the arrangements • Increased relief/repayment, reduced charge, deferred payment, avoidance of obligation to deduct tax • Tax arrangements are abusive if the entering into or carrying out of them cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions, having regard to all the circumstances

32. Planning • Consider transferring income-producing assets to lower-earning spouse • Transfer exempt from CGT (s58 TCGA 1992) • Tax saving of up to £22,000 for a 50% taxpayer • Also effective for investments offering a capital return, in order to ensure that both spouse's CGT annual exemptions (£10,600 in 2011/12) are utilised and maximum use is made of the 18% rate (for basic rate taxpayers)

33. Planning • Retain profits within company to take advantage of lower CT rates • Extract these profits at CGT rates by way of sale of shares or liquidation of company in future • Or, extract by way of dividend once IT rates decrease • Note that retaining cash and investments within company could affect availability of CGT and IHT reliefs (eg s165 gift relief, BPRetc)

34. Contact details:David Pedley T: 0121 232 5266 M: 07976 994 334 E: david.pedley@uk.gt.com

35. Questions