My former spouse, Michael was driving along a country lane close to his home, when an elderly man turning left on a blind bend into Church Lane on his bicycle, in his slippers was hit by his car broad side. Of course, Michael stopped, called an ambulance, and did whatever he could to make the man comfortable. However, sadly the accident resulted in the man having to have both legs amputated and in due course he died from his injuries.
Michael when he set off from home that day, had not the slightest intention to cause grievous bodily harm, let alone murder anyone, but as a result of driving his car a man was seriously injured and eventually died.
In legal terms, Michael did the deed, but did not mean to cause harm, he was therefore not penalised for his actions. This has been the law for centuries, but it does not apply to non-declaration of tax.
If you avoid tax the fact that you did not mean to, is irrelevant. The fact that due to the ignorance of your liability you are made bankrupt is OK. The fact that you were given advice which was incorrect or that a third party such as a bank transferred monies, which you did not know about, but which results in tax payable by you, carries no sympathy with HMRC.
Furthermore, tax is not logical or straightforward, it is hugely complicated and changes every year. You are expected to know it all.
The examples, given in the HMRC Guidance Notes on Failure to Correct (which I talked about last week and the week before) are fairly obvious examples of evasion.
Emma has a house in Spain which she lets out, collects the rent, but fails to declare it in her self-assessment – this is clearly evasion and she needs to correct this oversight immediately. In another case Peter dies domiciled in the UK and Henry is his sole heir. Henry inherits £200,000 which he keeps in a bank account in Cayman Islands and does not declare it. This is evasion and Henry needs to correct it.
However, there are many examples I can think of where assumptions are made, with or without professional advice where tax is due and not declared, because the taxpayer, did not suspect a liability and therefore fails to declare because he was not aware that tax was payable.
Take for example a gift of a property in Spain, by a UK domiciled spouse George to his non-UK domiciled wife Michele. Most people would expect this to fall within the 100% spouse exemption for inheritance tax purposes, but it does not. The gift from George to Michele if it is in excess £325,000 could be subject to inheritance tax on which tax could be payable.
Another oddity is, where a non-UK domiciled person Fabian has bank accounts abroad and his bank has been studious, so he thinks, in separating the income from the capital as it arises. Remittances, so he thinks, are being made to him in the UK from ‘clean capital’ and outside the charge to tax. However, what Fabian does not realize is that his bank has failed to identify properly the source out of which remittances are made to the UK and consequently Fabian has failed to declare the income in his tax return.
In both cases, HMRC could well pick up these oversights under the Automatic Exchange of Information due to start in September in 2018. If either George or Fabian do not have a ‘Reasonable Excuse’; a review by an independent accountant, HMRC could charge the non-declared tax plus up to 200% penalties, even if they had no inclining that any tax was due.
I was speaking recently to a leading tax accountant, he said ‘long gone are the days, when people would come to us to save tax, I now have the unpleasant task of telling my clients where they have inadvertently failed to declare, whether income, capital gains or inheritance tax.’
HMRC’s justification to their approach is that
‘Anyone who owns or has an interest in assets held offshore or has had a source of income that is offshore, or has moved income or the proceeds of capital gains offshore is potentially affected…. You should check that you have declared all tax liabilities that arise as a result of these assets and if you find that you have unpaid tax liabilities you should come forward and correct them as soon as possible and in any case no later than 30 September 2018.’
HMRC then sets out a list of assets which if held offshore should put you on alert that an independent report from an accountant is required confirming that no tax is due. This report is what I call your ‘get of jail free card’
‘Examples of assets include:
· Art and antiques
· Bank and other savings accounts
· Debts owed to you
· Gold and silver articles
· Government securities
· Land and buildings, including holiday and timeshare
· Life assurance policies and pensions
· Other accounts, such as stockbroker’s or solicitors’
· Other bond deposits and loans
· Rights and intellectual property
· Stocks and shares
If you would like to find out more please contact me, Caroline Garnham on 020 3740 7422 or email me on firstname.lastname@example.org.