Here to talk to Finance Monthly about tax investigations is Anton Lane – a Chartered Tax Advisor and a CEDR accredited mediator, qualified to deal with complex dispute resolution. He has formerly worked in the Tax Risk Management team at Ernst and Young, as well as managing group interactions between HRMC and a major global corporation. He established Edge Tax in 2005, to undertake complex investigations, provide bespoke tax consultancy and advise employers on the most effective ways to structure their employee remuneration packages and manage their staff.
As a professional operating within the taxation sector, what are the challenges presented by investigations in relation to tax?
Those that have the misfortune to be investigated generally have very complicated affairs. They may have participated in schematic planning which attempts to take advantages of loopholes, implemented bespoke planning structures, or have put in place commercial operations without regard to the tax implications. Some are simpler – for example, false invoices or accounting – but most are complicated. In relation to tax, a good specialist has to keep abreast of developments in the most complicated areas of legislation and case law. They also need to be able to think around the law in order to best represent their clients, anticipating the challenges if the case were to proceed through the courts.
What are the most common tax issues that your clients need assistance with?
The tax issues vary considerably. However, most cases have transactions that could arguably be taxed in different ways, some of which have a much higher liability. Obviously, a client would prefer the lowest liability but it is necessary to consider the facts in each circumstance to establish what representations can be made to agree a reasonable position with HMRC. Clients often find it very confusing that a transaction could be taxed in different ways. They appreciate the time and effort to establish what is best for them in light of the facts.
Can you detail the main stages of a tax investigation and some of the complexities that are likely to arise in the process?
Tax investigation work can commence in two ways:
- Where someone is suffering sleepless night syndrome and they want to find peace; and
- Where HMRC have made general enquiries that have escalated.
For the purposes of this question, I have assumed that a specialist is appointed. If not, the investigation would take a very different steer with a taxpayer at the mercy of an HMRC officer! The main stages are as follows:
- Communicating the best and worst case scenarios to the client. Aside from the complications of the case, a client may feel vulnerable or even mistreated by HMRC. It is an adviser’s job to set out the process and reassure the client – in particular letting them know how they may be protected from prosecution.
- Manage the process with HMRC, which often means taking control and bringing a stop to the pressured and reactive responses to an officer.
- Establishing the severity of any tax irregularity and whether the client needs to be protected by a particular code of practice.
- Agreeing the scope of review with an officer where necessary.
- Reviewing primary records and preparing a disclosure (or response) to the officer, putting forward reasoned arguments.
- Negotiating tax, interest and penalties.
- Contractually concluding the position.
What are the common areas of dispute in relation to tax between the individual and HMRC?
Disputes arise in many areas including what tax or law applies, the quantum, technical interpretation and whether the individual did something knowingly. The key to our work is preempting the officer’s views and making sure we’ve prepared for dealing with that view.
The UK Government recently introduced a new disclosure facility which offers taxpayers the chance to make voluntary disclosure of unpaid taxes relating to overseas income and gains – how is this going to affect taxpayers who routinely include all relevant overseas income and gains in their tax?
The details of the latest proposed facility are not yet known. However, there is a large number of people who have offshore structures who believe they are legitimate having received advice – it might be important for those with a little fear to check with an independent adviser whether they should look into this facility.
Those that routinely include all their overseas income and gains should have nothing to fear although they are possibly at higher risk of enquiry. Those that haven’t included overseas income and gains are likely to be identified through the UK FATCA process or other means by HMRC during the next twenty-four months or so. It is important for those people to seriously think about whether they should be doing something now to regularize their affairs with HMRC.
Why do individuals and corporations need to consider assistance from a professional in relation to tax investigations?
The simple answer is that the appropriate specialist will manage the process with little disturbance to the client, meaning they can get on with their life or business. They will consider how representations can be made in light of facts to get the best possible tax outcome. The potential exposure to penalties will be mitigated and the risk of prosecution taken away. This is all on the assumption that the client wants to embrace the process.
What are the particular challenges of operating across multiple jurisdictions?
For an adviser, the challenges are maintaining a good level of knowledge. For a client with affairs split across multiple jurisdictions, the main difficulties are ensuring the entity remains taxable in one jurisdiction!
Is there anything else you would like to add?
HMRC has evolved and are showing little mercy for those they pursue who don’t cooperate. It is better to manage your position with them than let them conclude how to treat you. Wait and see is not a good option.