Let the tsunami begin

Jack is a M&A specialist who works for ABC bank in London. He is paid a salary on which tax is deducted monthly under PAYE. His sister is a facilitator in Dubai, matching investors with investments and as and when Jack introduces a client who invests with her, she pays him commission. His first ‘deal’ was in 2002 on which he received a six figure sum.

In 2002, the world was very different. Jack saw this commission as his ‘rainy day’ money and put it in LPT Bank in Dubai. He did not disclose it in his tax return. His sister paid him further commission in 2010 and again in 2015. He had ‘got away’ with not paying tax in 2002, so did not see why he needed to declare it in 2010 or 2015

Jack is evading tax.

There is an amnesty in the UK called the Worldwide Disclosure Facility which runs until 30 September 2018, but it is hardly attractive. If Jack were to disclose voluntarily the commission earned in 2002, 2010 and 2015, he can expect to pay the full tax due for those years, plus a minimum penalty of 30%, but this could go as high as 200% plus interest. Furthermore, there is no guarantee that HMRC will not press for a criminal prosecution which would no doubt lose Jack his job with ABC Bank.

Although the amnesty is hardly attractive, it will be better than if HMRC were to find out that Jack had been receiving commission from Dubai on which he has paid no tax.

As from September 2018, Dubai, as part of the United Arab Emirates will collate all financial information including all the details of bank accounts held by LPT Bank and will send the details of Jack’s account to HMRC. Armed with this information HMRC will investigate Jack’s Dubai account. This is what CRS is designed to do.

Let’s now suppose that Jack was born in Hong Kong to parents who lived most of their lives in Asia. Although Jack went to school in the UK, he only came to live in the UK when he got married in 2001, 16 years ago. Before then he was living and working in Hong Kong. Jack has always considered himself non UK domiciled and was under the misapprehension that provided he did not bring the commission into the UK he was not liable to tax.

The truth is that non doms, who wish to benefit from the ‘remittance basis of tax’ must claim it, it is not automatic. Furthermore, the benefit is now only available to those who pay for it annually, which is £30,000 if you have lived in the UK for 7 of the previous 9 years, £60,000 if you have lived in the UK for 12 out of the previous 14 years and £90,000 if you have lived in the UK for 17 out of the previous 20 years. Furthermore, if Jack wants to benefit from the remittance basis of tax he would lose his annual personal allowance which is deducted from his tax payable by his employer ABC Bank

Before voluntarily disclosing his commission to the tax authorities Jack should first work out whether he would be better off as a UK or non UK domiciled person.

HMRC may not accept that his parents, at the time of Jack’s birth were non UK domiciled, since they were both born in the UK and in 2015 returned to the UK. Therefore, if, on doing his calculations he believes he will pay less tax as a non UK domiciled person, but the tax saving is only marginal, he should factor in the added time and cost it will take to argue his non domicile position with HMRC – which could take as long as 4-5 years.

Jack is tempted to take the monies out of Dubai and put them into his UK bank account, to avoid Dubai disclosing it to HMRC. But Jack should not assume that his bank in the UK will accept a sizeable sum of money without asking questions.  – If Jack does not give his bank a sensible answer as to the source of funds, it will file a suspicious transaction report – at which time all hell will let lose.

Jack like so many people around the world need to face up to the reality that authorities now have the information they need to tackle tax evaders and to say that you thought you were tax compliant –is no defence. If you have monies in the following countries your financial details will be exchanged as soon as September 2017

Anguilla, Argentina, Barbados, Belgium, Bermuda, British Virgin Islands, Bulgaria, Cayman Islands, Colombia, Croatia, Curaçao, Cyprus, Czech Republic, Denmark, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, 23 Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, Turks and Caicos Islands, United Kingdom.

And in the following countries from September 2018

Albania, Andorra, Antigua and Barbuda, Aruba, Australia, Austria, The Bahamas, Bahrain, Belize, Brazil, Brunei Darussalam, Canada, Chile, China, Cook Islands, Costa Rica, Dominica, Ghana, Grenada, Hong Kong (China), Indonesia, Israel, Japan, Kuwait, Lebanon, Marshall Islands, Macao (China), Malaysia, Mauritius, Monaco, Nauru, New Zealand, Panama, Qatar, Russia, Saint Kitts and Nevis, Samoa, Saint Lucia, Saint Vincent and the Grenadines, Saudi Arabia, Singapore, Sint Maarten, Switzerland, Turkey, United Arab Emirates, Uruguay, Vanuatu.

The time to act is NOW.

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