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Autumn Budget 2017: Litigation and investigations aspects

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My initial view about Budget 2017 was that it was light on announcements in relation to litigation and investigations – and I was going to comment that the chancellor had resisted the siren calls (or outright clamour) for ‘more’ action in response to the ‘scandal’ (or largely non-event) that was the Paradise Papers. The Budget paper Tackling tax avoidance, evasion and non-compliance started by listing out the government’s achievements since 2010, in the sort of self-aggrandising way more usually seen during staff appraisals (which I suppose the Budget has now become for HMRC). In particular, it highlighted 100 measures introduced since 2010; an additional £160bn protected and collected since 2010; and spearheading the global campaign for tax transparency.

Then, bam, the paper announces 18 new measures.

The first eye-catcher was the extension of assessment time limits to 12 years (from the usual four years, or six years in cases of carelessness) for all offshore matters. (The 20 years for fraudulent conduct was left undisturbed.)

If anyone was in any doubt that HMRC recognises that, despite the Paradise papers ‘noise’, offshore centres are not in fact teeming with service providers willing to help their clients engage in evasion, this is the proof in the pudding. Most of the non-compliance which the common reporting standard will uncover is going to be technical in nature or the result of genuine mistakes. HMRC has therefore cleverly bought itself double the time to analyse, track down and pursue such non-compliance and increase the amount it can yield.

It also underlines the further blurring of the line between planning, avoidance and evasion – in this case, through closing the space between morality and criminality in tax, by reducing the gap between fraud and avoidance assessment time limits from 14 years (20 to six) to just eight years (20 to 12).

A consultation is planned for the spring. What is not yet clear is whether the time limits will be retrospective. My instinct is that they won’t be, because it would mean HMRC would be able, overnight, to reopen old years (i.e. 2006 to 2012). The last precedent in this area was the removal of the need for HMRC to prove negligence or fraud to make 20 year assessments for taxes lost through ‘failure to notify’ chargeability. The new rules (given effect by FA 2008) removed the conduct condition altogether, but they only apply to periods on or after 31 March 2010. However, in this day and age, and with the ferocity of online campaigns, precedents such as that have less meaning, so who knows what will happen…

Other measures of real note, even though very narrowly targeted, are the proposed new measures to tackle VAT evasion by sellers on online marketplaces:

  • FA 2016 introduced (VATA 1994 s 77B) joint and several liability provisions, which make the operator of an online marketplace liable for unpaid VAT liabilities of an overseas seller in respect of whom HMRC had served a notice on the operator. This will be extended to UK sellers as well, reflecting that overseas sellers were sidestepping the rules through incorporating shell UK companies.
  • More notably, the government plans (apparently without even the offer of a consultation) to extend joint and several liability to the operator in circumstances where it knew (or should have known) that a particular overseas seller should have been (but wasn’t) registered for VAT, i.e. absent any notification from HMRC. This is a huge extension of the principle of joint and several liability. Current VAT rules provide for joint and several liability based on a knew or should test in respect of certain prescribed goods, but those rules apply only to businesses directly making a supply of the goods, rather than a third party to that supply chain, as is the case here.
  • Operators will also have to ensure that VAT registration numbers displayed by sellers on the website are valid, and the government is also calling for evidence on whether operators do enough to ensure tax compliance of the users of their marketplaces.

Having then thought that the Budget had delivered a raft of new enforcement measures, on closer inspection I noted that not all of the 18 ‘new’ measures were in fact ‘new’. A handful were updates on initiatives previously announced, such as the proposals for applying a reverse charge in the construction sector. Meanwhile, the requirement to notify HMRC of offshore structures is now being taken forward in conjunction with the OECD and EU (a victory for common sense, given that the UK is spearheading the transparency drive and rules such as the common reporting standard, which also shine a light on offshore structures).

On one view, whatever the government does to tackle avoidance and evasion will be futile. Some campaigners will never accept that the government has done enough, whatever it does. Those campaigners may be disappointed that there was nothing extending the ambit of the register of trusts, or forcing our offshore territories to make their company registers publicly available, or any mention of the long mooted public register for the ultimate beneficial owners of UK real estate. The campaigners may, however, be pleased to see that HMRC will be given an extra £155m to help to ‘address a range of avoidance and evasion activity, including tackling enablers and facilitators of tax fraud’.

Personally, I believe there is a lot to be read into this reference to enablers and facilitators. I made a foolhardy prediction at a conference on the morning of the Budget that due to a number of factors – including the move to a cashless society, the common reporting standard making offshore non-compliance harder, and the large-scale extraction of data by HMRC from large companies to identify non-compliance in the economy – UK tax evasion might be all but eradicated in the next ten years. But to get there, the final piece in the jigsaw is the role that big business has to play and its response to the Criminal Finances Act 2017 facilitation offences.

In practice, the CFA 2017 forces risk-averse large businesses to be more aware of – and influence – the levels of tax compliance in their markets and supply chains, through analysis of their interaction with evasion through the informal economy, organised crime or cross-border business activity, for fear of committing the offence. It is important to remember that such facilitation and the tax evasion facilitated are crimes of dishonesty – but the question of what is dishonest is decided by a jury of 12 women and men. Bearing in mind that it takes years for today’s conduct to make it into proceedings before a court, who knows what standards the public will be holding the representatives of corporates to in five to ten years’ time. Is your business ready for that?




Issue: 1378
Categories: Analysis , Tax policy , Budget