Are you committing a crime?

To quote the Government: ‘Tax evasion is a crime which this Government is determined to stamp out because it deprives the country of much needed funds to run our public services, unfairly placing a greater burden on the vast majority of people who pay their fair share of tax. This Government will be relentless in its pursuit of evaders. For too long it has been too easy for people to hide their money overseas to evade tax.’

Everyone agrees with this, but wait a minute.

One of our clients, who is French, has two homes in London which he visits once or twice a year. His wife wants to decorate them before she visits, whereas he doesn’t because he views at as a waste of money considering they come to London rarely and spend most of their time in France. I wrote to him about his liability for ATED and he replied that he didn’t even know he is subject to the tax.

Under French tax law he only has to pay tax if his centres of economic interests are in France. It hadn’t occurred to him that by having a residential property in the UK owned by a company in Jersey, he is now subject to an annual tax. However according to HMRC he is evading tax and committing a crime.

As with Francois, the most vulnerable are the non doms. They have a home in the UK and might be living in London for most of the time, but were not born here, so are not familiar with our laws and ways of doing things. Most will not have formed the intention to evade taxes they do not think to ask or even know who to ask. However, HMRC now has the powers to find out who these people are, whether from exchange of information from other countries, or by working with the land registry.

Is the taxpayer’s charter of any help?

Frankly – no.

HMRC promises to treat taxpayer’s with respect, allow them to be represented and try to keep costs down provided they do not suspect them of evading tax.

In fact one of the rights published in the February 2009 draft was to ‘pursue relentlessly those that break or bend the rules’.

The only redress these unwitting taxpayers have for tax evasion will be against their advisers. The professionals who advised them to set up a structure to avoid tax and then did not subsequently warn them of the change of law.

These professionals may also come under attack from HMRC in being complicit in a taxpayer evading tax; knowing a structure was set up and operated for a client and then failing to contact them to tell them that tax was due may be enough for HMRC to go on the offensive to professionals whether lawyers, accountants or trustees who have set up these structures for their clients.

To give an example; ABC and partners advised Bhavik in 2008 to buy his home through an offshore company XYZ Limited. Chester Bank Ltd has offices in Jersey, London and Singapore and manages XYZ Limited for Bhavik for which Bhavik pays a fee. Bhavik is neither resident nor domiciled in the UK. Although he is liable for ATED since 2013, he rarely comes to London and was not aware of this tax.

Does Bhavik have a claim against ABC and partners for putting him into a structure to avoid tax and failing to notify him that the law had changed? Does he have a right against Chester Bank Ltd which manages XYZ Limited which failed to tell him that the law had changed even though they categorically state that they do not give tax advice? Has HMRC got a right against ABC and partners and or Chester Bank Ltd for failing to report the structure and possible evasion of tax?