Ignorance of the law is neither bliss nor an excuse in the current tax landscape, as HMRC are developing increasingly stringent measures to catch HNWs out, writes Anna Gaston
The mythical ‘over a pint’ or ‘on the green’ tax advice conversations between non-professionals may sometimes elicit the naïve comment: ‘But how will HMRC know?’
When said non-professional (let’s call him Geoffrey) seeks advice from a properly qualified and regulated tax practitioner, the response will be, ‘Well Geoffrey, you will tell them!’
As we lead evermore international lives, HMRC are taking an increasingly global approach to both taxation (for example the additional 3 per cent rate of SDLT on purchases of second homes takes into account properties located abroad) and disclosure. This can increase the burden on taxpayers or lead to frustration for those whose plans are no longer tax efficient but meet some family or other desirable goal.
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Ultimately, our tax system is one of self-assessment whereby each taxpayer is under a duty to report fully to HMRC and to sign a statement that their tax returns are complete and accurate to the best of their knowledge.
When the Criminal Finances Act comes into force at the end of this month, his adviser’s firm may also be subject to criminal sanctions as if it fails to prevent the criminal facilitation of tax evasion by any of its staff or partners or anyone acting in association with any of them.
HMRC have an ever growing bag of tricks to peek behind a self-assessment tax return to catch out those who (deliberately or otherwise) fail to comply with their obligations.
2017 marks the first reporting year under the Common Reporting Standard (CRS); for the first time HMRC will receive reports of overseas accounts and investments held by (or for) UK individuals. Details of the value of offshore accounts and funds received by a UK taxpayer will be available to cross-reference against their self-assessment return. In addition, as demonstrated by the Panama Papers, and the reported cyber-attack at Deloitte, more and more detailed personal information is held online and at risk of becoming accessible to the wrong individuals due to cyber security breaches, it is not just the long arm of the law which Geoffrey should fear.
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Add to this the new initiatives for disclosure and transparency (for example the register of ‘persons with significant control’ in relation to UK companies, the trust register in relation to trusts with UK tax liabilities and the heralded property ownership register) and HMRC and others have access to a wealth of your personal and financial information.
Failure to report and falsely signing a declaration of accuracy on a tax return are carry heavy financial penalties and criminal sanctions. While the financial penalties for honest under-reporting are lighter (and indeed the penalty system is designed to encourage individuals to voluntarily correct inaccurate or misleading information in exchange for lighter penalties) honest mistakes are not always without penalty.
‘But how could I have known?’ we suspect Geoffrey might wail.
A tax adviser worth his or her salt might quip sagely, ‘Ignorantia legis neminem excusat – Ignorance of the law is neither bliss nor an excuse.’ After all, we all have a responsibility to adhere to compliance and disclosure requirements.
Anna Gaston is an associate at boutique private wealth law firm Maurice Turnor Gardner LLP
