Complying with your UK tax obligations

It’s never been more important to comply with your UK tax obligations. Knowing the tax that you’re liable for, and paying this in a timely fashion, is an essential part of your wealth planning.

Jennifer Knowlson

In this video Jennifer Knowlson explains why tax compliance has become more important than ever, what to consider if you have outstanding tax issues and how to manage your tax obligations going forward.

View transcript

Over the last year or so, you’ll have seen a huge number of stories in the press which focus on tax avoidance and evasion. HM Revenue & Customs are focussing more and more resource on areas which they think are higher risk, including high net worth individuals and offshore bank accounts.

Having a dispute with HMRC can be a stressful and nerve-wracking experience, so if you need to make a disclosure to HMRC, or want to resolve a dispute with the taxman, our team of tax investigations specialists can help.

If you’re a UK tax resident and have Swiss accounts and investments, you must take action by 31 May 2013. Otherwise, you could face a levy of up to 41% on your assets, plus annual withholding tax on those assets. More importantly, if you haven’t declared the income and gains arising from those assets, you should make a disclosure now to avoid penalties and potentially prosecution.

The Liechtenstein Disclosure Facility is HMRC’s most generous tax disclosure opportunity ever, and we can help you through the process to get your tax affairs up to date.

As a wealthy individual, you may have entered into tax planning in the past which is now subject to HMRC scrutiny. HMRC have announced settlement opportunities for some of this planning, including Film Partnerships and Employee Benefit Trusts. Our experienced negotiators can help you to reach an agreement with HMRC on outstanding issues which may be keeping you awake at night.

Managing tax risk isn’t just about drawing a line under the past – we can help you manage your future risks and obligations too. If you employ a nanny, housekeeper, gardener or other domestic employee then you're likely to be caught by new PAYE reporting rules which will apply from 6 April 2013. These rules require real-time reporting to HMRC by any employer and we can help to make sure you're ready.

If you’d like us to help you manage your tax obligations please get in touch with me or my colleagues.

UK Government focus on tax avoidance

The Government is focusing on challenging tax avoidance and dealing with tax evasion.  It is estimated that HM Revenue & Customs’ (HMRC’s) activities in this area will deliver almost £22bn per year in additional revenue by 2014/15.

As part of this activity, HMRC is specifically targeting taxpayers with offshore accounts in territories such as the Channel Islands and is sending letters out to individuals it considers are at risk of not having paid the full amount of tax. With the recent media attention on individuals engaged in tax avoidance and with HMRC devoting more resource to their High Net Worth Unit (which focuses on the tax affairs of the UK’s high net worth individuals) it’s never been more important to get your tax affairs in order.

Employ staff in your business or household? – New mandatory PAYE reporting

Do you employ a nanny, housekeeper, gardener or other domestic employee? Then you are likely to be caught by the real-time information regime for PAYE, which imposes strict deadlines on submitting payroll information to HMRC which are linked to every payment of earnings.

Talk to us or your payroll provider to make sure you're meeting your obligations as the mandatory requirements came into effect from 6 April 2013.

Swiss bank accounts and the Liechtenstein Disclosure Facility

Those with Swiss bankable assets had to take action under the UK/Swiss Tax Agreement by 31 May 2013 but there are still some residual issues which we can help with especially as information is now being passed to HMRC as a result of the agreement.

The Isle of Man, Jersey and Guernsey have agreed to report information in respect of UK residents to HMRC, and the reporting regime commences in 2014.  Additionally, the Cayman Islands, British Virgin Islands, Bermuda, Gibraltar and Turks and Caicos have indicated that they will share information with the UK.

If you have undeclared offshore income or gains offshore, it is important to think about how best to regularise your tax affairs. The most generous UK tax disclosure opportunity ever: the Liechtenstein Disclosure Facility (LDF) is available until 2016 and disclosure facilities relating to the Isle of Man, Jersey and Guernsey have been launched and provide opportunities for those with undeclared assets in these jurisdictions to come clean. For more information and latest news, contact our Tax Disclosure team.

New major anti-avoidance legislation

The GAAR ("General Anti-Abuse Rule") is now with us and our clients are having to consider the potential application of this new rule to their transactions. Clearly this new rule is targeted as the egregious end of the spectrum but considerable care is still needed to apply, in particular, the "double reasonableness" test and to look at the examples contained in HMRC guidance. The onus is on the taxpayer to consider whether the rules apply and PwC is building up a body of experience analysing the rules.

New anti-avoidance legislation to accelerate payment of tax

We expect that the consultation documents issued at the end of February (‘Raising the Stakes on Tax Avoidance’ and Tackling Marketed Tax Avoidance’) will result in new powers being given to HMRC from July 2014. These will have a significant impact if you are currently in dispute with HMRC about tax avoidance schemes. We anticipate these new powers will include:

  • The ability for HMRC to issue 'payment notices' requiring the payment of any tax due within 90 days if a case is heard by the tax tribunal and is considered by HMRC to determine the open issue
  • Penalties for those who fail to amend their tax returns, or do not withdraw claims, after a court or tribunal decision which HMRC believes is determinative of an open issue,
  • As separate power allowing HMRC to require payment from anyone who has entered into a DOTAS (Disclosure of Tax Avoidance Schemes) arrangement (or should have disclosed under DOTAS) as long as the relevant arrangement is under enquiry, with the time limit for payment likely to be 90 days.

If you think that this is likely to affect you and that payment may be an issue, talk to us in order to consider in advance what can be done to approach HMRC for more time to pay.

Late filing and late payment - tax return penalty regime

Two years ago, HMRC brought in a more stringent tax return penalty regime for late filing or late payment – so making sure that your return is completed and payment of tax due is done on time is more important than ever. If you’ve missed the 31 January 2014 filing deadline for 2012/2013 returns, you should still aim to file as soon as possible, as the penalties rise depending on the number of days your filing and associate tax payment are late by.

The detail: If your 2011/12 return is filed on
1 February 2013 or later You'll receive a £100 penalty regardless of how much tax is due on your return.
1 May 2013 or later You'll be fined an additional £10 per day up to a £900 maximum
1 August 2013 or later You'll receive an additional penalty of £300 or 5% of the tax due on the return (whichever is greater)
1 February 2014 or later You'll be charged an additional penalty of £300 or 5% of the tax due on the return (whichever is greater)
The detail: If your tax isn't paid by 31 January, in addition to interest you will be subject to the following penalties:
30-day penalty: if the payment is 30 days late, you'll receive a penalty of 5% of the tax owed at 2 March 2013.
6-month penalty: if the payment is 6 months late, you'll receive a penalty of 5% of the tax owed at 2 August 2013 in addition to the 30-day penalty
12-month penalty: if the payment is 6 months late, you'll receive a penalty of 5% of the tax owed at 31 January 2014 in addition to the 30-day and 6-month penalties

Other offshore tax agreements with HMRC

As part of its ongoing initiative, HMRC is likely to expand its offshore agreements into other territories such as Singapore. So proactively reviewing your offshore affairs and ensuring tax compliance is highly advisable.

General Anti-Abuse Rule

Major anti-avoidance legislation has been implemented in the form of the general anti-abuse rule (GAAR) which is designed to target aggressive tax planning. The GAAR is effective from mid-2013 and applies to (amongst other taxes) income tax, capital gains tax, inheritance tax, stamp duty land tax and the new annual residential property tax, and there is no clearance procedure, so we’d recommend you seek advice prior to initiating any future tax planning.

HMRC enquiries

HMRC enquiries can be stressful and you could face penalties of up to 200% of the tax due on an incorrect return.

It’s never been more important to deal with an enquiry effectively and efficiently. Our investigations specialists can help you to manage the process.  In particular: 

  • if you receive a letter offering the Contractual Disclosure Facility (i.e. under Code of Practice 9) or opening a Code of Practice 8 enquiry, you will need to ensure you obtain specialist advice.  These are serious investigations which require expert knowledge and experience to handle appropriately.
  • HMRC are committed to using Alternative Dispute Resolution to resolve old enquiries and we have trained experienced tax mediators who can help you through this process.  If an enquiry has been going on for some time, or stalemate has been reached, the ADR process might help resolve the situation.

Settlement opportunities

  1. There are settlement opportunities for taxpayers who have historically participated in tax avoidance schemes. The terms of these facilities differ but in the majority of cases, the outcome of a negotiated settlement will be better than the potential worst case scenario outcome should the planning fail as a result of an adverse court or tribunal decision.  If you are in dispute about historic tax planning, we would advise that you consider whether a settlement under one of HMRC's offers is worthwhile
  2. For structures involving employee benefit trusts (EBT). We have a wealth of experience in dealing with EBT settlements for owner-managed businesses – if you would like to discuss your own situation please contact us.