Batter the rich!

The Treasury last week estimates the cost of lockdown to the UK taxpayers will balloon to £300 billion up from an estimate of £55 billion in March 2020.

Britain’s finances are in the weakest state since the immediate aftermath of the Second World War but this time there is no Marshall Plan to bail us out.

In the last chapter of my book ‘5 business myths exposed by Covid 19’  I talk about the ‘Horrors to Come’, but before I sent it to the publishers last week, I wanted to check some facts with the former co-head of the team responsible in HMRC for offshore compliance and fraud – Andrew McKenna now CEO of McKenna Tax Consultancy.

You can listen to our interview on GFOS ‘How to keep your Money’ published on Spotify and iTunes.

What staggered me most about my conversation with Andrew was how sophisticated and intelligent HMRC is now in obtaining and processing information and data. 

I have for many years been aware of the Automatic Exchange of Information often called the Common Reporting Standard, which Andrew told me can now track 90% of the world’s GDP, but I had not known that HMRC has invested £100 million into a ‘cutting edge’ social network analysis software data mining computer system Connect. Andrew says Connect can collate and compare a self-assessment return with offshore and onshore accounts, VAT records, corporate activity, land registry, Facebook, Google earth, Council Tax, flight details and much more. Anyone’s name can by typed into the system and it will produce a ‘spider diagram’ or mind map of that individual to highlight whether and where an investigation should be made.

Now with lockdown, post Coronavirus, the Exchequer is reeling under the expense of lockdown. HMRC is under pressure to produce more revenue and will naturally start where the money is – the rich. As Andrew said during his podcast HMRC will ‘hit the wealthy hard’.

‘An investigation’ Andrew says, ‘usually starts with a ‘nudge’. A letter to the taxpayer which may say ‘you have an offshore bank account’ which has not been declared please disclose details now. Some taxpayers will disclose, some will deny, and some will ignore. Andrew makes it clear that it is at this stage advice is needed if the best possible outcome is to be achieved.

But it is not just fraud which Andrew says will be the focus of HMRC attention. Under the Automatic Exchange of Information HMRC has detailed information about trusts, foundations, offshore companies and financial movements as well as offshore bank accounts.

And according to Andrew ‘the line between avoidance, structuring and evasion is in HMRC’s view a lot less clear than many professionals like to think’.

Many of these structures, I know from my professional experience were set up with careful and detailed advice, but according to Andrew, the entrepreneur used to get their own way may wish to influence the trustees and ignored the dangers spelt out from the outset.

Tax investigators, Andrew knows only too well, are cynical about a taxpayer who sets up a structure offshore. They are convinced that tax has been avoided and actively look for evidence to prove it.

The investigation can go on for six or more years as the investigator digs deeper and deeper into the personal financial circumstances of the taxpayer looking for evidence of personal control and a wanton disregard of the details and complexity of the structure. This digging Andrew admits can be very stressful.

Once ‘lost tax’ has been found and admitted, or a Judge has decided in favour of HMRC, the tax investigator will issue a tax demand and depending on how co-operative or otherwise the taxpayer has been, will add on penalties of up to 200% of the tax ‘lost’. In many cases this together with the fees spent in defending the investigation can wipe out the entire offshore fund.

In terms of quantum, Andrew reckons that there is an estimated £8-9 billion ‘lost’ to HMRC as a result of offshore tax avoidance –which with penalties I estimate could raise as much as £27 billion.

But don’t expect any wriggle room. Andrew made it clear during our discussions, HMRC now follows strict procedures. Whereas ‘deals’ were commonplace historically in tax enquiries particularly involving oversea and complicated structures, HMRC now want the facts, will interrogate fully and will not do a deal.

Andrew’s advice to anyone with monies in a structure offshore is to make sure there are policies in place to ensure on-going compliance and that the data is up to date and can be made available easily. A timely review could save years of brutal investigation, eye popping fees and blistering penalties for non-co-operation

But HMRC will not restrict itself to the offshore accounts of the very rich.

 From my research for my book ‘5 Business Myths exposed by Covid 19’ the ‘tax gap’ to the Exchequer is 5.6% of GDP which is ‘lost’ to HMRC. A more significant proportion of this gap is lost through small businesses, the hidden economy and criminal activity which amounts to £14 billion. Here again, Connect has the information which will lead tax investigators to the businesses most likely to be non-compliant.

Through Connect Andrew says HMRC can review 50 hairdresser businesses in an area and pick the five with irregularities which need to be further investigated.

However, looking at the figures even if all tax ‘lost’ were recovered with penalties, the UK is still likely to be in deficit for many years to come. Some of this shortfall can be managed by ‘printing’ money – but as I say in the last chapter of my book – what is needed is some new and innovative ways to generate more revenue, by attracting more business and wealth into the UK if future generations are not going to suffer, for decades to come.

I have some ideas for discussion which I will share with you in the forthcoming weeks in this Note and through our Podcast Professionals.

If you would to find out more about our Podcast Professionals or would like to join our project to create the definitive podcast library of information for the UHNW community contact [email protected]

Keep safe, keep strong and keep well.