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Disclosure facility
HMRC's offshore disclosure facility applies to UK residents who hold overseas funds in a company or trust, as well as to accounts held in the investor's name, reminds PKF. Anyone wanting to use the offshore disclosure facility needs to declare his or her intent before the 22 June deadline, and make a full disclosure and payment by 26 November 2007.
PKF's tax investigations teams have come across a number of instances where banks have supplied HMRC with details of accounts held by offshore companies and trusts with a connection to individuals from the UK. John Cassidy of PKF points out that individuals will be liable for the same penalties if tax evasion can be proved, saying that 'the banks' provision of information is much wider than most people expected; bank letters we have seen clearly show that they have supplied details of company bank accounts. Anyone who thinks their funds are still secret because they used an offshore company or trust might be in for a nasty surprise'. He surmises that HMRC have thought very clearly about catching funds held in trusts and companies or they would have demanded information on accounts that had opted for retention tax under the European Savings Directive.
Definition of offshore fund
The definition of an 'offshore fund' for the purposes of TA 1988, s 756A was to be changed by clause 56 of the Finance Bill, but is subject to a proposed Government amendment published on 18 May 2007.
It is intended to put beyond doubt that an open-ended company is not prevented from being an offshore fund in which an investor may have a material interest for the purposes of ss 756A and 759 purely by virtue of failing the 'reasonable period' test in Financial Services and Markets Act 2000, s 236.
It has been suggested that this test may result in companies in which investors are able to realise their interests in under seven years being excluded from the definition of a collective investment scheme at FSMA 2000, s 235, and thereby being outside the scope of the offshore funds regime, whereas TA 1988, s 759 encompasses interests that can reasonably be expected to be realised at some time during the seven years from acquisition. Clause 56 removes the reference to reasonable period when s 236 is used in the context of the offshore funds regime. The clause does not seek to return the compass of the offshore funds regime to the pre Finance Act 1995 position.
Some advisers and fund managers have raised concerns that this may bring some offshore companies within the rules that were previously not considered to be open-ended for the purposes of either FSA regulation or the offshore fund regime.
The offshore funds regime applies only to an entity defined as a collective investment scheme within section 235 of FSMA. In considering whether that is the case, the Economic Secretary's statement that the definition of a collective investment scheme in FSMA is intended to cover companies that look to a reasonable investor like open-ended investment companies can helpfully be considered.
From a tax perspective the presumption ought therefore to be that a company with fixed capital is outside the offshore fund definition unless there are special conditions to suggest the contrary. To date, most of the examples of overseas companies or their investors thought by advisers and fund managers to be affected by clause 56 are not affected. However, HMRC are aware that certain open-ended investment companies not previously within the definition of offshore fund may now be within that definition as a result of clause 56.
HMRC have published on their website a number of frequently asked questions setting out their views on this issue and how various types of offshore entities and their investors might be affected by clause 56.
www.hmrc.gov.uk
HMRC safeguards
HMRC have published two more consultation papers, as part of their work to modernise their powers, deterrents and the accompanying safeguards. The first paper considers options for a new approach to compliance checks, while the second asks for views on the adequacy and effectiveness of current safeguards for taxpayers.
Currently, HMRC rely on provisions inherited from their predecessor departments, the Inland Revenue and HM Customs, which evolved over considerable time, and involve substantial differences between different areas and taxes.
The first consultation paper considers a possible compliance checking framework which would:
- align rules across income tax, corporation tax, VAT, PAYE and National Insurance, where doing so would bring more clarity, consistency and efficiency, and reduce costs for both taxpayers and HMRC;
- set out requirements and safeguards which distinguish between non-business and business taxpayers; and
- better align the time limits for making tax assessments for different taxes.
The options were discussed with business and representatives of the professions at workshops during the summer and autumn last year, and reflect responses to previous consultations.
The second paper concentrates on:
- safeguards within non-tax legislation and non-UK tax legislation which ensure that HMRC themselves comply with the legislation, and provide taxpayers with easy access to the underlying safeguards; and
- safeguards related to the administration of the tax system (e.g. the Civil Service Code, handling of appeals and complaints, guidance and codes of practice).
It will consider whether the safeguards are effective, and whether HMRC are doing enough to make taxpayers aware of the safeguards, and to implement them.
The deadline for submitting comments for both consultations is 10 August 2007. Contributions may be made by e-mail to: powers.review-of-hmrc@hmrc.gsi.gov.uk or by post to: HMRC powers review, Room 1C/03, 1st Floor, 100 Parliament Street, London SW1A 2BQ or by fax to: 020 7147 2460.
Commenting on the paper, which she says is a good summary of what HMRC wants to do and how they plan to implement it, Francesca Lagerberg of Grant Thornton says that one glaring omission is the lack of a taxpayer's charter on which taxpayers can rely for the kind of treatment they can expect from HMRC. There is a 'wishy washy service commitment' but no charter. She says that the Organisation for Economic Co-operation and Development recommends that every developed country should have a taxpayer's charter and that it is 'strange that the UK does not have one'. She says that a debate is needed to find out what is wanted, e.g. as well as taxpayers' rights, should it include taxpayers' obligations?
Francesca notes that in Gordon Brown's speech accepting the nomination as leader of the Labour Party, he says that he 'will bring forward reform proposals to renew our constitution with the first draft constitutional reform bill later this year', and wonders if this means that he would like to introduce a charter.
HMRC news release dated 18 May 2007
Retail prices index
The all items retail prices index for April 2007 is 205.4.
