Taxman’s tough Tactics on Offshore Tax Evaders
Last November saw the closing date for voluntary disclosure of offshore bank accounts under what became known as an “Amnesty”, Now , many months on, as HMRC have issued acceptance letters to those who took the chance to pay up in return for a 10% penalty level, they are using their inside knowledge to chase up those who decided to ignore them first time around.
Tax evaders have had their chance to come clean for relatively low cost and HMRC will not offer that same opportunity a second time.
They are already issuing letters to those they know hold offshore accounts but have failed to declare the gross interest received and are requesting onerous details of all accounts held, both inside and outside the UK including evidence of the source of the funds deposited.
Don’t wait until the Taxman tracks you down. Come forward now unprompted and there are still savings to be made despite the closing of the Amnesty.Contact me to find out how to be safe not sorry.
The Taxman’s 2nd wave offers no protection against a criminal prosecution and specialist advice is the key.
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Latest Tax News
IR 35 Latest Tax Cases-Winners and Losers
There have been winners and losers in four new decisions on the IR35 Intermediaries Legislation. The cases of MKM Computing Limited and Dragonfly Consulting Limited heard before the Special Commissioners held that in both cases IR35 applied. However, in two other hearings The First Word Software Limited and Datagate Services Limited the Commissioners found for the taxpayer. In First Word Software the director and shareholder provided computer consultancy services to Royters sitting in their office at his own desk using their telephone and being on their email system. He did not receive holiday or sick pay. The critical matter here is that the agreement between the agency and First Word Software provided for the right of substitution and furthermore the Commissioner found that there was neither control by Royters of Mr Atkins nor was there any mutuality of obligation as there was no guarantee that Royters would offer him work. On these facts plus others, the Commissioners found that he could not be deemed to be an employee and therefore IR35 did not apply. In Datagate the Commissioners found in favour of the taxpayer, Mr Barnett. He was another computer consultant also working at his client’s premises. They saw no evidence that Mr Barnett was controlled as an employee and they put a lot of weight on the fact that the parties have set up a working agreement that did not intend an employment relationship to exist. Mr Barnett was in business on his own account and whilst the Commissioners found in his favour this decision contrasts sharply with two other hearings. In the case of MKM and Dragonfly the issue was approached by the construction of a notional contract between the worker and the client. In MKM it was found that the terms of the agency agreement contained no contractual right of substitution and that the client effectively controlled the computer programmer when standing back and looking at the whole picture. They found that the notional contract would have been an employment contract. A remark was also made that the parties’ intentions about whether there would be an employment contract were irrelevant in this case, clearly contrasting with the above one Datagate. In Dragonfly the Commissioner found sufficient evidence of control of the worker, Mr Bessell, by the client the AA. As work was always available to him during the contract this was sufficient to override any doubts about the mutuality of obligation under the contract. The provisions of IR35 were therefore found to apply.
Advisory fuel rates for company cars
The Revenue’s advisory fuel rates were first published in January 2002 and it has been possible to use them to negotiate dispensations for mileage payments for business travel in company cars. They aim to save time for employers and the Revenue and are intended to reflect actual average fuel costs at the time they are set. However the rates only apply where employers reimburse employees for business travel in their company cars or require their employees to repay the cost of the fuel used for private travel. Note the rates do not apply in any other circumstances. For example, employees driving company cars are not allowed to use them to calculate a deduction if the employers reimburse them at a lower rate. These calculations must continue to be based on actual costs incurred. When employers reimburse an employee for the cost of fuel used for the business travel so long as the rate paid per mile is no higher than the advisory rate for that particular engine size and fuel type the Revenue will accept that there is no taxable profit and no Class 1 NIC liability. HMRC do not dictate these rates and employers may wish to set rates which better reflect their own particular circumstances. For example, where the cars in the fleet are fuel efficient employers may prefer to reimburse at lower rates than those advised by HMRC. Advisory rates are not binding where an employer can demonstrate that the cost of business travel in a company car is higher than the guideline mileage rate, perhaps where an employee needs to use a particular type of car such as a 4 x 4 to cover rough terrain. When employers pay mileage rates higher than the advisory rates but are unable to demonstrate that their fuel costs per mile is indeed higher, there is no fuel benefit scale charge if the mileage payments are made solely for business travel. Instead any excess will be treated as a taxable profit and as earnings for Class 1 NIC purposes. The employee can obtain relief for any actual expenses which have not been reimbursed. Many employers require employees to repay to them the cost of fuel used for their private travel and provided that all of the miles of private travel have been properly identified and recorded HMRC will accept that there is no fuel benefit charge and therefore no Class 1A liability where the employer uses the appropriate rate from the advisory fuel rate tables. Even where it seems that the actual cost of fuel could be more than the current advisory fuel rate it is only in exceptional circumstances that HMRC will consider that a higher repayment rate should apply e.g. where the employee drives a very large engine company car that achieves fewer than 16 miles per gallon. HMRC will always accept that the guideline rates are used to calculate the amount an employee must make good where the engine size is 3 litres or less. The advisory rates will not be binding where an employer can demonstrate that employees cover the full cost of private fuel by repaying at a lower rate per mile. It should be noted that throughout this the important word is demonstrate. Both employers and employees are required to be able to demonstrate their business or private mileage travelled. This will mean installing a tracker in the car which can be analysed or completing detailed logs of their journeys showing the miles travelled, the location and the purpose of the journey. Many dispensations are not drawn in terms of the advisory fuel rates and many contain rates at which employers are entitled to reimburse employees for fuel which the employee has purchased for business mileage in a company car without any tax or NIC implications. Some of these dispensations may quote specific rates per mile. Others may just refer to the advisory fuel rates prevailing at the time. From 1 July 2005 HMRC interprets all such existing dispensations but excluding vans as though they referred to the advisory fuel rate unless the specified rate is higher. HMRC are not issuing revised dispensations unless they are due for renewal nor will employers need to apply for one in order to make this change effective. Of course at any time existing dispensations can be reviewed for other aspects in the normal manner. This does not mean that employers have to pay higher rates than their own policies dictate. It simply allows dispensation rates to be varied centrally relieving both sides of the administrative burden of regularly updating them for this one purpose.
RESIDENCY RULES
The issue of residency cropped up again in a recent case before the Special Commissioners of Barrett v HMRC Special Commissioners 639. The case sought to determine whether an individual Mr Barrett was resident in the UK during 1998/99, a year during which he was paid a bonus of £2.8m by a UK company of which he was a director. Barrett did not declare this on his own UK tax return believing that he was not resident because he had made a distinct break from the UK and had spent more than 12 months abroad. Mr Barrett’s appeal was dismissed as the Commissioners found that although Barrett had indeed spent much of 1998/99 out of the UK he had visited the UK on at least 11 occasions during the year and spent at least 45 days in the UK. He had continued to own a house in which his partner and sons lived and to which his post was sent and therefore the Commissioner stated that there was no evidence of a distinct break in the pattern of his general life. His employment terms had not changed as he had continued to do the same as he had been doing before and had not established a home abroad and there was no overseas business establishment. He had also done nothing to change his banking arrangements or obtained a new driving licence to show any intention of breaking his residence in the UK. This case follows the recent Shepherd and Gaines-Cooper decisions confirming the need for a distinct break from the UK and clear evidence of that break for non-residency to be established.