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August 2020 Tax Investigation Round Up

August's round up of the latest tax investigation news and cases:

  • 10 trillion euro uncovered in offshore assets
  • IR35 reforms are given the go ahead for April 2021
  • Takeaway owner disqualified for five-year tax fraud

10 trillion euro uncovered in offshore assets

Last year saw the level of data exchanged between tax authorities from different countries double as a result of the introduction of automatic tax information exchange. This resulted in the uncovering of 10 trillion euro in offshore assets, leading the OECD to state that automatic exchange is a 'game changer' in the fight against international tax evasion.

Over the course of 2019, automatic exchange of tax information accounted for the sharing of data from 84 million financial accounts held offshore by the residents of tax authorities from almost 100 different countries who are partaking in the exchange.

The system was first introduced in 2018 when 47 million financial accounts were shared, uncovering only 5 trillion euro in offshore assets - only half of that uncovered in 2019.

When questioned about the significant increase year on year, the OECD state that the growth comes mostly from 1) the increase in number of jurisdictions receiving financial information, and 2) the wider scope of information that is being exchanged.

Angel Gurría, OECD secretary-general, said: ‘Automatic exchange of information is a game changer.

‘This system of multilateral exchange created by the OECD and managed by the Global Forum is providing countries around the world, including many developing countries, with a wealth of new information, empowering their tax administrations to ensure that offshore accounts are being properly declared.

‘Countries are going to raise much needed revenue, especially critical now in light of the current Covid-19 crisis, while moving closer to a world where there is nowhere left to hide.’

Titled the 'Common Reporting Standard', the automatic sharing of tax information requires those countries who have signed up to automatically share financial information held by their tax authorities on non-residents on an annual basis, with the end goal being a significant clampdown on tax evasion - the sort of cases often dealt with via the WDF (Worldwide Disclosure Facility).

With more countries set to join the Common Reporting Standard over the coming year, the figures seen in 2019 are expected to increase further in 2020.

IR35 reforms given the go ahead for April 2021

The hotly debated IR35 off-payroll working reforms that were set to be introduced in face of significant opposition have been given the go ahead for April 2021.

An amendment to the Finance Bill proposing a two-year delay to the introduction of the reforms, in light of recent events and to allow time for a more thorough review of the potential impacts, was defeated in the House of Commons.

The reforms, which have been in place in the public sector since 2017, are centred around moving the burden of responsibility away from the individual and onto the organisation in matters pertaining to the status of contractors and whether they are in fact employees.

The implementation of the reforms has been some high profile news headlines with popular TV personalities including Eamonn Holmes and Christa Ackroyd coming under fire from HMRC, both of whom lost their appeals.

The plan to progress onto rolling IR35 out into the private sector has proved a controversial one with claims that the new rules are too complex and that there isn't sufficient support from HMRC for people to assess their correct tax status.

However, despite the various concerns surrounding the reforms, and the potentially damaging timing in light of the Covid-19 crisis, the amendments to the finance bill, brought forward by a cross-party group headed by David Davis, was defeated by 317 votes to 254. The amendments came on the back of a recommendation by a House of Lords sub-committee that the government take a more wide-ranging and encompassing approach to tax reform as opposed to focusing just on off-payroll workers tax.

Lord Forsyth of Drumlean, the committee chair, said: ‘The committee welcomed the government's decision to defer these off-payroll working rules in the wake of the Covid-19 pandemic. However, our inquiry found these rules to be riddled with problems, unfairnesses, and unintended consequences.

‘The potential impact of the rules on the wider labour market, particularly the gig economy, has been overlooked by the government. It must devote time to analysing all of this. A wholesale reform of IR35 is required. The rules were deferred for a year because of the current crisis, but how prepared will businesses recovering from the crisis be to take on this extra burden on next year?’.


Takeaway owner disqualified for five-year tax fraud

The director of Raja Tandoori, a takeaway located in Paisley, has been awarded a nine-year disqualification from being a company director after it was uncovered that he had been hiding tax liabilities held by the company for a period of five years.

The tax liabilities totaled more than £100,000 and the failure of the company to make these payments to HMRC allowed the tax authorities to wind the company up via petitioning the courts.

Rob Clarke, Insolvency Service chief investigator, said: ‘Company directors have a legal responsibility to ensure their companies pay the correct amount of tax but Kulwant Lally clearly failed to do this for as long as the takeaway was trading. Nine years is a substantial ban, removing Kulwant Lally from the corporate arena, and should serve as a start warning to those directors who think can renege themselves of their duties.’

Having being incorporated ten years ago, the limited company forced into compulsory liquidation in September 2018 after claiming to have registered the company in order to protect the trading name, when it had in fact been trading between 2013 and 2018, whilst not declaring this to HMRC or paying any tax.

The total amount owed, taking into account tax debt and penalties, came to £134,000 which authorities are in the process of collecting whilst the company director serves his directorship disqualification.

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