July's round up of the latest tax investigation news and cases:
Earlier in the year over 600 taxpayers in the UK received letters from HMRC offering for them to voluntarily disclose their tax affairs.
These recipients were individuals implicated in 2021 by the leaked Pandora Papers.
In previous years, the typical approach taken by HMRC to similar cases is to open a tax investigation and gather more information around the individual’s tax affairs using their information powers.
However, whilst many were expecting this approach to take place on the back of the Pandora Paper leak, this wasn’t the case on this occasion.
HMRC instead took the approach of contacting implicated individuals and offering them an opportunity to make a voluntary disclosure.
These letters are being used increasingly by HMRC and are referred to as ‘nudge’ letters designed to prompt individuals to make disclosures without the need for HMRC to open a full investigation into their tax affairs.
One such example of nudge letters being used by HMRC to great effect is the recent and ongoing Let Property Campaign, which yielded millions for HMRC following tens of thousands of landlords making disclosures.
The efficacy of nudge letters in the Pandora Papers case is yet to be determined.
Whilst nudge letters undoubtedly work in some instances, they may not prove so effective in cases where the tax affairs of the individuals concerned are more complex and nuanced.
This increased complexity makes it much more difficult for recipients of nudge letters to respond to HMRC in the best way. As such, the initial response rate appears low, although in some of these cases making a voluntary disclosure is the right decision for the recipient.
If you have received a letter from HMRC in reference to making a voluntary disclosure, we recommend speaking with a tax investigation expert immediately, before even responding.
With the right expert guidance, navigating a tax disclosure or investigation can be far quicker, less onerous, and ultimately achieve a more favorable outcome for you.
Hotel La Tour recently sold shares and treated the transaction as sitting outside the scope of VAT.
This was contested by HMRC and the case was heard at the First Tier Tribunal, where HMRC lost their appeal over the sale of shares.
The VAT assessment issued by HMRC based on the transaction was for a sum of £76,000 they believed to be payable by the hotel in VAT.
Ultimately, it was agreed in the hearing that the subsequent use of the proceeds of the sale of shares gave the firm the right to deduct input tax.
Judge Guy Brannan said: “It seems clear to us that the reason and jurisprudence of the CJEU has evolved considerably since BLP.
“In SKF, the CJEU grappled with the issue of fiscal neutrality in circumstances where essentially the same transactions could either be outside the scope of VAT or exempt from VAT. We accept the submission made by Hotel La Tour that the CJEU in SKF was addressing the distinction between a transaction which is exempt and one which is outside the scope of VAT.
“We consider that the FTT’s application of these principles to the facts of the present appeal to be unimpeachable.”
New laws are going to be created by the government to make it a criminal offense to ignore the Stop Notices issued by HMRC to tax avoidance scheme promoters, who can now face up to two-years in jail as a result of failing to comply with the notices.
The scheme is currently in draft legislation, and in addition to the two-year jail sentence that can be issued, there is the possibility of an unlimited fine too.
The power of this new law lies in its ability to be applied regardless of any disputes or contests made by the promoters about the efficacy or legality of their tax avoidance scheme. If a Stop Notice has been issued and ignored, the jail sentence and fine can be granted.
For some time now, HMRC has attempted to curb the promotion and use of tax avoidance schemes, using methods such as publicly publishing lists of promoters. This particular approach has proved largely ineffective, however.
By escalating the criminal offence of ignoring a Stop Notice to a strict liability offence, HMRC will be able to collect evidence on a promoter and then open a criminal investigation against them. The legislation also covers off previous ‘loop-holes’ that promoters often used to avoid having to comply with Stop Notices after they had been received.
The Treasury said: “The new criminal offence measure is designed to ensure the strongest possible deterrent is in place to ensure promoters comply with a Stop Notice and stop promoting their arrangements.
“The principal focus of the new offence is to tackle the continued promotion of those avoidance schemes covered by Stop Notices. An offence would be committed by a promoter if a scheme continues to be marketed after they receive a Stop Notice covering the scheme.”
HMRC will also be granted further powers to prevent directors of tax avoidance schemes from becoming directors of other companies again in the future. The idea is to not only reduce the amount of avoidance schemes, but to also deter directors from getting involved with avoidance businesses.
The consultation on the draft legislation is currently running and the new laws are expected to be effective by March 2024.
If you have used or been involved with a tax avoidance scheme and want professional advice, contact the Gilbert Tax team for a free and confidential conversation about your tax affairs.
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