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Budget 2015: compliance and enforcement aspects

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Almost certainly the biggest surprise was the announcement (pre-released in Wednesday morning’s Daily Telegraph) of the intention to abolish self-assessment returns for individuals and small businesses. This was duly confirmed as a centrepiece of the Budget speech – and in the Budget overview document under the heading ‘Making taxes easier’. The outline proposal is to create a system of ‘digital tax accounts’ whereby taxpayers can (somehow) return their taxable income and gains in real time – and pay more ‘flexibly’. Of course, it rather begs the question of whether the overriding intention is to ‘make taxes easier’ for taxpayers – or for HMRC? ‘Both’ would be the chancellor’s likely answer. The main concern here is that a new regime of tax reporting makes it much easier for future governments to increase powers (particularly in relation to information gathering) without appropriate or commensurate safeguards. Likewise, it creates a template for a gradual move to ‘equivalent’ treatment for self-employed people to those on PAYE, i.e. a monthly payment on account of tax. This has the potential to remove the cashflow advantage which is such a significant benefit for small business. A ‘roadmap’ setting out the proposals and a consultation on a new payment process (leading to legislation) is promised for the next Parliament. It is almost inconceivable that a Labour-led government would not wish to press ahead with this proposal, so we can await developments with great interest. Put some time aside to respond to any consultation that leads to a ‘dumbing down’ of taxpayers’ rights.

The other big announcement – already much trailed – will not be made until Thursday 19 March (after this edition of Tax Journal goes to press). This is the proposal for new criminal offences relating to tax evasion and penalties, specifically aimed at those who ‘facilitate’ or promote it (principally the banks in the wake of the Swiss banking ‘saga’ that so dominated the news in February). The chief secretary to the Treasury was stated as being due to make this announcement, which was originally a Liberal Democrat proposal. The Conservatives seem to have endorsed it as well – and, once again, it would be very odd if Labour did not press ahead with its introduction – or possibly something even stronger. Once again, therefore, we can expect a consultation and in due course (probably in the Autumn Statement) draft legislation. One ‘dog that did not bark’ once again was the chancellor’s own proposal from April last year of a strict liability offence relating to offshore tax evasion – which was consulted on in the Autumn of 2014, but in respect of which no mention was made in the last Autumn Statement. This might be one of the offences announced by the chief secretary.

Something of a surprise was a suite of announcements around disclosure facilities. The existing (and long running) Liechtenstein disclosure facility will be closed three months prematurely, in December 2015, whilst the life of the Crown Dependencies disclosure facility will be shortened by nine months and will end at the same time. In their place will come a ‘new disclosure facility’ (NDF) relating to tax evasion, but on much less generous terms (penalties in excess of 30% and, most significantly, no guarantee of immunity from criminal investigation). In the first place, this really does mean that there is a ‘burning platform’ in respect of disclosures that have not already been made. Taxpayers with offshore accounts – and particularly those who have moved money out of Switzerland – need to bear in mind that most jurisdictions have now signed up to the common reporting standard. The result is that financial information from (inter alia) Singapore, Hong Kong, Israel, Turkey and the UAE will be fairly freely available to HMRC by 2018. The remainder of 2015 will go down in history as the ‘last chance saloon’ for anyone with such irregularities to benefit from very generous terms – and, in particular, from immunity from prosecution. The NDF is clearly intended to present an opportunity for people still to come forward. The absence of a guarantee of immunity is perhaps a mistake if the NDF is genuinely intended to be effective. This aspect is likely to have been included as a result of the outrage of the Public Accounts Committee in February (volubly expressed to Lin Homer, HMRC’s CEO), at a perceived ineffectiveness on the part of HMRC to prosecute tax evaders. The real issue will be what the attitude of the next government will be to criminal investigations for tax evasion. Will the 90 year old policy of only prosecuting a tiny proportion of cases finally come to an end?

The announcement of a material change to the closure rules relating to enquiries (enabling HMRC to close an aspect of an enquiry unilaterally, notwithstanding the overall return remaining open) was announced in principle in the Autumn Statement, with a consultation document being published just before Christmas. The consultation closed on 12 March 2015. The principal mischief here was the lack of a commensurate right on the part of a taxpayer (perhaps safeguarded by a requirement to seek approval from the tribunal) to close an aspect of their return with a view to proceeding to litigation. We are told that the government is ‘currently considering’ the responses and we can perhaps anticipate a revised proposal (or possibly the same proposal) in the post-election Budget, which is expected in June.

Legislation relating to the once highly controversial direct recovery of debt proposals, which was published in draft form for consultation around the time of the Autumn Statement, will be introduced ‘in a future Finance Bill’. In the event of a Conservative-led government, we might expect this in the post-election Finance Bill. A Labour-led government may have more immediate priorities in its post-election Budget and Bill and in such circumstances this might be expected in the 2016 Bill. It is interesting, given the extent of previous consultation, that this provision was not included in the current Bill. That said, it is perhaps more surprising how much legislation will be included in the forthcoming Bill, given the minimal amount of parliamentary time available to consider it, before Parliament is prorogued next week.

Finally, two other provisions which have been announced previously and consulted upon will be legislated upon ‘in a future Finance Bill’. The first is the proposal for tougher measures against people, known as ‘serial avoiders’, who persistently enter into tax avoidance schemes which fail; this comes in tandem with a widening of the current scope of the promoters of tax avoidance schemes regime. The second is a tax-geared penalty regime aimed specifically at the GAAR. This was another measure that the Public Accounts Committee has been calling for (with increasing volume) for quite some time. One wonders whether a Labour-led government might want to introduce something more robust? In the event of a Conservative-led government, we can expect these provisions in the post-election Finance Bill.

So the days of the coalition of 2010–15 are very nearly over, but its legacy of weapons of mass enforcement very much lives on – and can only increase under the next government, whatever that looks like…