Time is running out for UK tax evaders as revenue gathering authorities around the world prepare to share data on an unprecedented scale.
But how fair is The Common Reporting Standard (CRS), which has been agreed by more than 100 countries, including the UK, and comes into force next year? And does it mean a massive exchange of privacy rights for a relatively modest take of money?
The money question is easier to deal with. HM Revenue & Customs (HMRC) estimates that its collectors brought in £26.6 billion in 2014/15 alone from turning the screws on evasion and aggressive avoidance; and it has got back £2.5 billion from offshore tax dodgers since 2010. More unpaid tax might reasonably be expected to fl ow as people take advantage of a window currently available to declare hidden wealth before the CRS is in place.
The CRS is certainly game-changing in terms of how national authorities work together and should not be underestimated. But there are concerns around the routine sharing of confidential financial information about people who manage their affairs legitimately, given the other reasons to shelter wealth abroad with a degree of anonymity.
For example, the CRS is so sweeping in scope, and somewhat indiscriminate in application, that it will embrace swapping information about trusts and foundations, many of which are set up for minors or other vulnerable individuals. Some feel this intrusion flies in the face of what trusts and foundations exist to do.
The CRS also has disturbing echoes of other, wider data privacy issues now being played out between institutions, notably the row between Apple and the US Federal Bureau of Investigation over what information can be reasonably requested from corporations.
Unfortunately, we may just have to accept that a basic erosion of privacy has taken place and learn to live with it, such is the pressure to eradicate aggressive tax avoidance. Meanwhile, there is now just a short while for UK ‘taxophobes’ to come clean with HMRC.
No place to hide
There is no guarantee of exemption from fines and prosecution this time around for anyone who does come forward, unlike with previous disclosure schemes. But there is the promise of mitigating some consequences. The absence of much incentive is itself a warning: the measure of an HMRC so confident of receiving a mass of data from October 2017 that it is scarcely bothering to sugar the pill for advance disclosure.
The CRS certainly cannot be avoided. It emerged from the G20 richest nations deciding to crackdown on evasion and is now part of UK law. Essentially, it requires tax authorities in signatory nations to collect and review accounts held by individuals who live in any other country signed up to the CRS.
High net worth individuals will be affected if they hold any financial assets elsewhere within the CRS zone, which is ever-expanding to absorb most traditional, reliable, tax havens. This means being aware not just of bank accounts held offshore, but also share portfolios. The standard also embraces any interest in a trust where at least half the income derives from financial assets.
UK residents who are settlors, beneficiaries or protectors of offshore trusts, may well find that their account information is caught up and reported to HMRC if there has been any payment made. The same, of course, applies in reverse: high net worth individuals who are not tax resident in the UK, will find details of any holdings they have here reported to their country of residence for tax purposes.
In advance of next October, HMRC has proposed a statutory ‘requirement to correct’ for taxpaying individuals and institutions.
Those affected would need to notify HMRC and then get their affairs in order by the end of September 2018.
Given this opportunity to set the record straight - they should take it. The penalties for evasion are now harsh, for advisers as well as taxpayers, as we enter a new year when evaders face having fewer corners of the world in which to hide their financial assets.
Bryan Elkins is Senior Private Client Specialist and Tax Partner at Kreston Reeves and a former Inspector of Taxes with HMRC.
Please contact Bryan and his team on 01403 253282 or via email@example.com if you would like to know more.