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Self Assessment worries dog the new year 2017

Self Assessment worries dog the new year 2017

January tax help.

Firstly I hope all our readers and clients have a Prosperous 2017, not held back by Self Assessment worries.

As is so common after Christmas, we are getting loads of calls from new clients. People are keen to sort out their taxes.  I think Christmas focuses the minds.  People have time off at home.  They have chats with spouses and family.  They realise all is not well.

Self Assessment Tax Returns having been around for 20 years now. Despite this the 31 January date still creeps up and bites people every year – though the penalties are now nastier.

VIDEO – on similar content to this – see here

Why might you call Huston & Co?

  • You have income to declare and have not yet registered with HMRC
  • You are registered and realise there is not long left until the 31 January filing deadline, and want help with the Self-Assessment form.
  • There is a confession to be made to HMRC covering a number of years, and you want us in your corner against HMRC
  • You just want a chat or a review and can get that for an hourly consultation, by phone or in person.
  • You live or work overseas and want our specialist help with UK rents or overseas earnings.

Some people phone having seen my free tax videos on YouTube ( www.YouTube.com/HustonTV ).  I am delighted that these have been viewed well over 80,000 times.

Self Assessment

We can get your Self Assessment return filed before the deadline even late in January.  Also, in the early part of the month we can still get you registered with HMRC in time too!

Call Adrian Huston or Felicity Huston on 028 9080 6080 for a chat and a price to help you out. View the video for this post here

We are both quite approachable, despite both having been Tax Inspectors before we crossed the floor!

Dividend tax changes from 2016/17

Dividend tax changes from 2016/17

Nasty extra dividend tax hits owners of small companies.

April 2016 sees the start of a new dividend tax regime which will affect the owners of most of the UK’s small limited companies. Many will be hundreds or thousands of pounds worse off.

Individual investors who own shares can also be affected, but only if their total dividends in the year exceed £5,000.  So that means a fairly small number of people.

The Chancellor George Osborne has introduced this new dividend tax to balance out the tax bills suffered by people who have the same income, but receive it in different ways.

My video at http://tinyurl.com/HustonTV52 explains the change, and read on for further details.

Take 3 categories of people:

  • Jenny runs her own limited company. It can make £50K per year and she can take a mix of salary and dividends.
  • Roger is a sole trader who makes profits of £50K per year.
  • Andrew is an employee and his salary is £50K.

Prior to April 2016 Jenny could arrange her dividend/salary mix to make a big saving, mainly on National Insurance Contributions (NIC)

If we worked out the 2015/16 total tax and National Insurance bills (including Jenny’s company tax) there would be widely varying bills, as follows:

  • Jenny’s percentage of the £50K taken in taxes could be as low as 18% (or up to 33% if she took all her money as salary, against the advice of her accountant.)
  • Self-employed Roger would lose some 25% of his profits in tax and NIC.
  • Andrew, the employee would lose 27%.

Why the changes for 2016/17 and beyond?

With previous governments having encouraged businesses to form up as limited companies, now the Chancellor has decided to take away one of the main advantages – the ability to juggle your salary and dividend split to save some money.  He wants self-employed and limited companies to have a more similar tax regime.  I do not need to get into the morality of the old or new approaches, I must merely warn those with large dividends about the new regime. Before I go into the detail, let’s see the effect of the changes in April 2017.

How do Jenny, Roger and Andrew fare in 2016/17?

  • Jenny’s best case split of salary and dividend raises her tax bills to about 21%, up from 18%. (If she took all salary there would be no change at 33%, but that would be daft.)
  • Roger, being self-employed, is unaffected at 25%.
  • Meanwhile employee Andrew is also unaffected at 27% to the government.

So we can see that the Chancellor’s measure is closing the gap in the tax regimes between someone being self-employed and choosing to set up their business as a limited company. Jenny faces a few thousand more in tax each year due to the dividend tax.

The 2015/16 dividend tax regime in summary

Up to 5 April 2016 dividends, to the basic rate taxpayer, were simply treated as if they had already been taxed.

Higher rate taxpayers paid extra tax on dividends – 25% of the net they received.

This meant that the owner of a small company could take out a salary of say £10,000 and dividends of say £28,000 and pay no tax and only minimal National Insurance.  The company would pay tax, but taken together the company and owner would be better off that if they had just been self-employed.

Working out if you were close to the limit to start paying higher-rate tax was confusing.  Net dividends you received had to be grossed up.  Every £90 of dividend was treated as £100 gross.  The gross dividends plus your other income dictated whether you had some higher rate tax to pay.

The 2016/17 measures in detail

Dividend income will no longer have any form of tax credit to confuse the sums.  What you get is regarded as the gross dividend.

If your dividends in the year are £5,000 or less there will be no income tax to pay. This £5,000 is called your Dividend Allowance.

More reading and some examples are on the HMRC website at https://www.gov.uk/government/publications/dividend-allowance-factsheet

If your dividends exceed £5K, then those dividends above the allowance will be taxed.

The tax rates will depend on whether your total income exceeds the basic rate threshold. (£43,000 in 2016/17)

  • The starting rate for dividend tax is 7.5% on dividends over £5,000.
  • Any dividends which push you into the higher rate threshold will be taxed at 32.5%.
  • People earning over £150,000 will have a dividend tax rate of 38.1%.

Tax planning points for those in business

If thinking about setting up a limited company, then the decision is much less clear-cut than it used to be. You might decide just to be a sole trader or some form of partnership.

Limited companies will still be attractive if you can make a lot of money but do not need to take it all out of the company each year. They will also still provide some protection from risking your house and savings if something goes wrong or the business is sued.

Advice on the best form to use for your business is now more important than ever.

If you already operate through your own limited company then look carefully at dividend levels, amount you need to take out, and pension contributions.

Tax planning points for people with high dividends but are not in business

This new tax makes it much more attractive to reduce your dividend income to under £5,000, and one way to do this is to move your shareholdings into an ISA.  Dividend income in an ISA is tax-free.

Ba careful of Capital Gains Tax if selling a lot of shares or ones which have risen well since you bought them.  If worried, then paying for a chat with a tax expert might be worthwhile.

In conclusion

Anyone who gets more than £5,000 in dividend income will be affected by this from 6 April 2016.  They need to know what tax they will owe, and how to declare the income to HMRC.  They also need to set some money aside to pay the bill when it arrives.

VIDEO: See also my video on this subject at http://tinyurl.com/HustonTV52

 

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080.
Contact HMRC – 10 tips to do it right

Contact HMRC – 10 tips to do it right

22 years in our tax practice has taught me a few things about effective communication with my former colleagues in HMRC. It has also left me almost bald, from tearing my hair out when contact goes wrong. So let me make things easier for you.

Recently I had an unsatisfactory call to an HMRC officer, and what happened when I asked for the supervisor beggared belief! I was so shocked that I obtained the recording of the exchange (for how, see later) and posted it on YouTube. Suggest you listen from 5:05 on the following link http://tinyurl.com/HMRC-hangsup

So from years of experience here are 10 tips to having an effective contact with HMRC.

1. NERVOUS ON PHONE? THEN WRITE. If you are nervous on the phone to the government, or might get flustered, then writing might be easier. Then you have time to digest their written response. Or show it to a friend. Put your National Insurance number on the letter and write to the office which contacted you recently, otherwise to:

HM Revenue & Customs
Pay As You Earn
PO Box 1970
Liverpool
L75 1WX

I still write to HMRC to sort a lot of things out. My copy is a record of what was said, when and where I sent it.

2. PHONING HMRC. They are open 8 to 8 weekdays and 8 to 4pm on Saturdays. Call them on 0300 200 0300. If you can avoid the lunch hour and just after 9am you will find the waiting time on the phone shorter. Try calling at 815am, in the evening, or Saturday. ALWAYS, but always, write down the time and date of the call. Then the name of the person you spoke to, then what was agreed would happen.

3. EMAIL? HMRC is still very nervous about email and they don't publish email addresses for contacting them. Having said that they do have an email service for telling them a change of name or address. It is at http://www.hmrc.gov.uk/individuals/change-of-circs.htm

If your tax code for the present year may be wrong then you can contact them by email on http://www.hmrc.gov.uk/incometax/email-taxcode-wrong.htm

Take a screenprint BEFORE you hit submit, because after that you just get a message saying we have your message. No reference number, no proof of what you said.

4. ACCOUNTANTS – AGENT PRIORITY NUMBER – accountants and tax consultants can use a special number to contact HMRC which means they will rarely sit in a queue. I won't publish it here, because if a member of the public uses it they will not get helped.

5. GET A RECORDING OF YOUR CALL? If you think HMRC didn't do what they promised, or an officer behaved badly, then you may be able to get an audio recording of the whole call.       This is free and is done under Freedom of Information. You will need to know the number you phoned and the date and time. The application is easy and is at http://tinyurl.com/HMRC-FOI  When I applied this way the reply and CD was back inside two weeks – impressive.

6. WHEN NOTHING IS DONE? If you ring HMRC and nothing is done within say 3 weeks of the call, then consider a complaint. If you wrote a letter then best allow 5 weeks before complaining. Sometimes phoning to ask what's happening can work, but I tend to favour a written complaint. Mark the top of the letter COMPLAINT. Details on complaints at http://www.hmrc.gov.uk/complaints-appeals/how-to-complain/make-complaint.htm  If you still have problems then complain to your MP at:

House of Commons
London
SW1A 0AA

MPs get a priority service which often helps resolve things.

7. CAN AN ACCOUNTANT COMPLAIN FOR ME? Yes, and, once a second attempt to get HMRC to sort something has failed, they have a special service to use. It is called the Agents' Issue Resolution Service. I have had mixed results using this service, but your accountant should give it a go. They may not know about it.

8. COMPLAINING ON SOCIAL MEDIA. Increasingly people make complaints about companies and organisations via social media. Twitter can be good as someone in the PR department often monitors tweets which paint the organisation in a bad light. I have seen no sign of this causing HMRC to spring into life, but if you want a go then mention in your tweet @HMRCgovUK If you have a juicy case of incompetence, or hardship caused, you could always contact the national press, like the Daily Mail or BBC Radio 4's Money Box.

9. CAN I JUST CALL IN AT THE TAX OFFICE? No. In its drive to 'improve' customer service, HMRC has closed all its public enquiry offices! Yes, it's hard to believe. HMRC says that in some (probably extreme) cases they may do house calls. I reckon you would need to be very elderly or very infirm, but if you would like a home visit then ask them.

10. HOW DOES HMRC WANT ME TO CONTACT THEM? Really they want everyone to get their tax information from the website www.hrmc.go.uk  And where that's not enough they want you to phone. They would prefer not to receive letters – but don't let that put you off sending one!

Don't be scared of contacting HMRC. They genuinely do want to help, and most things can be sorted first time around. My tips above also show what to do if things go wrong.

 

Adrian Huston, a former Tax Inspector, is a director of tax consultancy Huston & Co, www.Huston.co.uk or 028 9080 6080. Twitter @HustonTax

10 step guide to fraud protection

10 step guide to fraud protection

10 step guide to fraud protection

I recently met convicted fraudster Elliot Castro at a fascinating event run by the Northern Ireland Fraud Academy. Suppress that yawn – having a convicted fraudster on the platform answering our questions was far from dull.

The book of his life of crime (before he went to jail) is a good read. “Other People’s Money: The Rise and Fall of Britain’s Boldest Credit Card Fraudster” was written by Neil Forsyth & Elliot Castro.

Just like the wonderful Leonardo DiCaprio film about the real life con-man (“Catch me if you can”) Scottish Elliot Castro travelled the World on £2 million of other people’s money. In Elliot’s case credit card details obtained in a number of ways. Also on the platform were Jonathan Wilson, Head of Special Investigations at the bank AIB plc, and Charlie McMurdie – the woman who was until recently the Met’s Head of Cyber Crime. So we had former fraudster, victim and enforcer all there together.

Inspired by the talk, and aware from clients and daily professional life how easy it is to be conned, I have pulled together my top ten tips to help keep you safe from fraud. Further detail on each is after number 10.

  1. Don’t regard a high credit limit on your card as a badge of honour.
  2. Be careful what you share on social media.
  3. Your friend is NOT stranded abroad in need of your help
  4. When someone rings you, how do you know who they are?
  5. Phishing – be very careful what links you click in emails
  6. Online purchases – use just one card
  7. If someone phones you and says there is a problem with your card – they may be a crook.
  8. Online shopping in public wifi zones is risky.
  9. Make a bit more effort with passwords
  10. Be less trusting

Now I will go into why I gave these 10 tips.

 

  1. Don’t regard a high credit limit on your card as a badge of honour. If the limit is £10,000 and you never go over £2,000, then ask your card company to reduce your card limit. I do this. That way if a crook tries to book a business class flight to Cape Town costing £3,500 the purchase will fail.
  2. Be careful what you share on social media. I knew posting that I am on holiday could let burglars know to call at my house. What I didn’t think of was that Elliot Castro would use these times to phone your office and speak to a PA or colleague and persuade them to give him some useful information, like a mobile phone number etc.
  3. Your friend is NOT stranded abroad in need of your help. If you get an email from a known contact saying they are in some far-flung place stuck with no money for an emergency operation/ flight home/ hotel bill, its 99.9% sure to be fake. I get one of these every month or so ‘from’ a friend or client.       Nearly always they have had their BT email address hacked. Having a BT email myself I see regular things popping up on my phone or in emails tempting me to log in. Don’t do it. Once they have your email and password they can hack your email. And if you use part of that password in other sites your whole online life may be upset.
  4. When someone rings you, how do you know who they are? Just because they say they are from your bank, don’t divulge to them any of your security details. For example if they ask for letters 1 and 3 of your password, then in a month’s time ring and ask for letters 2 and 4…you can see how they could build up a picture! Elliot would sometimes work for weeks on a person’s case before he actually tried to use their money. If someone is from your bank you should be able to ring back on their published phone number (not the one the person gives you!) and speak to someone.
  5. Phishing – be very careful what links you click in emails. These emails are getting very sophisticated. For example HMRC will NEVER email you about a tax refund or tax bill to be paid. It is easy to be drawn into clicking a link and ending up in a fake website where you then put in your banking details, and overnight become very poor.       Always go to your online bank by either following a ‘bookmark’ on your computer or typing from fresh the web address you already know. Those extra seconds could save you a fortune.
  6. Online purchases – use just one card. The ex-detective advised that you keep just one credit card which you use for online purchases. Don’t use the others. Maybe also keep a low but suitable credit limit on it.
  7. If someone phones you (say when you are in your hotel room) and says there is a problem with your card – they may be a crook. This was one of Elliot Castro’s techniques. Ring up and say the card they checked in with has a problem, and Bingo – the guest gives you all their card details!
  8. Online shopping in public wifi zones is risky. The ex-detective warned that you could be attached to a proxy wifi-zone. In other words it looks legit but is taking a note as you browse of all your log-ins, passwords and card details – perhaps while you buy that fraud book by Elliot Castro on Amazon!.
  9. Make a bit more effort with passwords. Put an odd character in the middle. Instead of piggy1474runs try pi6%ggy1474runs. Avoid using things people might find like your date of birth, your child’s name or your current pet. (Imagine the Facebook post – ‘look here’s a snap of wee Spot after he came back neutered & sad from the vet.’ Crook guesses password Spot2013 )
  10. Be less trusting. Just because you hear a call centre in the background, it might just be a recording. If the girl calling you interrupts to ask her ‘colleague’ to “Get the porter to collect those bags” this does not confirm the girl works in your hotel. It just makes the call to you sound legit!

And finally I am sure you are wondering why Elliot Castro flew back to Belfast (where he once lived) to talk about his life before jail. The answer is that he has turned his life around and now advises the police and lots of blue-chip companies about how businesses can beef up their security and prevent the fraudster making off their or their customers’ money. I wish him all the best – we need his help.

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080.

Affected by DATS / Diss Accounting and Taxation Services (European) Ltd closure / BMST?

Are you affected by DATS / Diss Accounting and Taxation Services (European) Ltd /BMST?

 

A lot of people have been shocked in the last few days receiving a letter saying that Diss Accounting and Taxation Services (European) Ltd is closing on 31 October 2013. The clients are told that from 1 November 2013 the firm (sometimes known as DATS) will no longer act as their accountants.

I would expect this sad news is related to the HMRC attention on the tax-avoidance arrangements knows as BMST – Bridgham Managed Service Trust. A lot of people who used this scheme were introduced to it by the late Fred Robertson of this accountancy firm. The letter is signed by or on behalf of Catriona Robertson the director.

I go into more detail on BMST in the following article also on this website under Our Blog.

http://www.huston.co.uk/blog/191-hmrc-sets-bmst-deadline-of-30-nov-2013-tax-avoidance.html

VIDEO about BMST – see http://youtu.be/q2_MpwCCFO0

 

DATS / Diss Accounting and Taxation Services (European) Ltd

This business closing on 31 October 2013 is sad news for those involved and no doubt there are sound business reasons for taking the difficult decision.

The clients coming to me having used BMST are always pointing out how they had been happy with the service they received from the firm, Fred Robertson and the staff.

Furthermore I have been very happy with the cooperation I have received from DATS as a result of my taking over clients’ affairs and writing to DATS for information.

I wish the staff all the best as they embark on the next phase of their professional career.

 

What if you were involved in BMST?

You now find yourself about to be without an accountant. They will not be completing your 2012/13 Tax Return or helping you settle the enquiry into your return as a result of using BMST.

We can help you with both matters, and if you so wish your ongoing tax and accounting needs.

  • We are acting for a number of BMST clients in settling their affairs, and by so doing avoiding penalties being levied.
  • I am in regular contact with the HMRC officers handling the enquiries – starting with Mike Friar and moving on to the colleagues to whom he has delegated settling the enquiries.
  • My wife Felicity Huston and I are both former HM Inspectors of Taxes and as such are perfectly positioned to help you in your dealings with HMRC. We know what arguments to put, and when to stop arguing!
  • Some clients have been in the UK under 91 days per tax year, and for them we can reduce the BMST tax bill by use of our non-residency expertise – we have hundreds of UK clients abroad.
  • We do not use exciting tax avoidance schemes, instead relying on the sensible use of the tax law we have- aim being that clients pay the minimum tax permissible under the law.
  • You do not need to worry about the 30 October 2013 Tax Return deadline. Since we use online filing software we can file your 2012/13 return up to 30 November 2013.
  • You DO however need someone to contact HMRC on your behalf before the end of November 2013. This needs done by us, you, or someone, to ensure that you can avail of the HMRC offer to settle matters without penalties.
  • The settlement with HMRC may well extend beyond November, but that is fine so long as they know you have been in touch.

 

What if you were not involved in this, but are a client of this firm as it closes in October 2013?

We are a full service accountancy practice, and act for limited companies, sole traders and partnerships. We can set up a limited company or LLP for you, and we have special expertise in the area of non-residency.

Distance is not a problem – if we work with a client in Kabul or South Sudan on a satellite phone, then working for you via email, phone and Skype will be quite smooth.

 

Contact:

Adrian Huston on +44(0)28 9080 6080    Email IRAQ@Huston.co.uk   Skype:  Offshore.Tax

 

Further reading 

On BMST – http://www.huston.co.uk/blog/191-hmrc-sets-bmst-deadline-of-30-nov-2013-tax-avoidance.html

Video on BMST – http://youtu.be/q2_MpwCCFO0

Feel free to check out Adrian Huston’s LinkedIn profile.

 

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm (non-residency specialists) Huston & Co – www.huston.co.uk or 028 9080 6080.

HMRC names and shames tax fiddlers for first time – who and why?

History was made today 21 February 2013.  HMRC published its first ever list of people who have fiddled their taxes but not been prosecuted.  Up to now if you were caught fiddling then in over 99% of cases HMRC just took a lot of money off you – and your secret was safe.  Only HMRC, your accountant and you would know. Only a tiny number of people are taken to court each year.

The gloves are off now and HMRC today used its new law for the first time.  They held back on spoiling Valentines Day last week!

HMRC hopes that by naming and shaming tax-fiddling businesses, some of which might be in your town, people will be encouraged to be more careful to declare all that they earn.  By the way when I say fiddling I am also referring to people who have failed in their tax obligations, and as a result HMRC did not get its tax when it should, and as a result HMRC charged penalties.

I will give a link to the list shortly, but firstly I want to set out the ground rules, and explain why the list will get much longer each quarter that it is published.  The ground rules:

  • The tax has to be paid late as a result of failing to declare it, or understating one’s income
  • The inaccuracy or failure must be for a period after 31 March 2010. (For individuals this mainly means the 2010/11 or 2011/12 tax years).
  • The offence can relate to income tax, Capital Gains Tax, corporation tax or VAT.
  • This one’s important – even when coming clean to HMRC the person still did not make a FULL disclosure.  In other words they were silly enough to continue to play cat-and-mouse with the tax-man.
  • If HMRC had not found out about the problem, the loss of tax would have been at least £25,000.  Note this must all be after 31 March 2010.
  • The law states that once the name and shame details have been published for 12 months the publication must cease.

The inaugural list 21 Feb 2013 of significant tax defaulters can be read at http://www.hmrc.gov.uk/defaulters/defaulters-list.pdf

What should you be aware of when reading this list?

  1. Firstly the list shows the name and address, at the time of the offences, plus the tax which wasn’t declared on time, plus the penalty levied. It shows the period after 31 March 2010 for which the penalties applied.
  2. Secondly when you add up the tax and the penalty you will know some of what HMRC needed paid, but you may not have the whole picture.  For example there may be interest added as the tax is paid late.
  1. Much more significantly – the traders may owe an awful lot more.  This is because HMRC can only tell us about the tax owed after 31 March 2010.  Most tax investigations go back a number of years – even up to 20 years.  Just because HMRC says they owed £30,000 and paid a £15,000 penalty doesn’t mean that’s the lot.  The trader might owe tax from 1992 to 2012 of £500,000, of which only £30,000 relates to the last year or two.

Why do I say the list is going to get longer every quarter a new one is published?

Even though names only stay on the list for 12 months, I know the list will get longer as the years go by.

At the moment HMRC can only publish where £25,000 of tax would have been lost since 1 April 2010 – less than three years.  Think forward two years to May 2015.  By then HMRC can name and shame you if you owe £25,000 in tax over a 5 year period. So the bar is getting lower every year.

£25,000 in 5 years – is that a lot?  Well if you pay tax at 40% and you failed to declare £20,000pa of your income then the tax and National Insurance would be at least £5,000 per year. So if caught in May 2015 you could find your name address and tax amounts published.

Do you think the local papers might run a wee story about the tax defaulters in their area?  You bet they will!

What lessons can we draw from HMRC naming and shaming tax defaulters?

If you yourself are fiddling – then if you stop now then chances are your tax after March 2010 will never exceed £25,000.  So even if you are caught, or come clean, your name will not be published.

If you go forward to HMRC to admit something – or HMRC catches you – then tell them the whole story.  Don’t hold back or fail to admit to some assets or bank accounts.  If you do the local press may come sniffing!

If you have something to confess to HMRC, or if they are onto you, seek tax specialist help NOW. We often take on cases from the regular accountant, settle the tax investigation, then hand the case back to the accountant for ongoing normal accounts work.

I have already had to advise some of our tax investigation cases about the naming and shaming rules, and consider whether our client stands to have their name publicised.

Contacting Adrian Huston:

As a potential client – call 028 9080 6080 – outside office hours 9-1 and 2-5 there is a voicemail.

Media and interview requests – in office hours call 028 9080 6080, outside office hours media can contact Adrian here:

http://www.huston.co.uk/media-contact.html?sTask=message&r_id=1439957649&task=display&pf=4

HSBC whistleblower names UK accounts in Jersey – is your tax paid?

The Daily Telegraph reported on 9 November 2012 that that same week a bank whistleblower had grassed up 4,388 UK people with accounts at HSBC in Jersey.

HMRC has, unusually, confirmed that they have received this information and will be using it to check the tax rules ‘are being respected’. What a lovely phrase!

What have HMRC been given?

Details of over 4,000 people in the UK who had money in HSBC in Jersey, sometimes known as HSBC Expat. This means their name, UK address and the amount in the HSBC account.

The average balance in the accounts disclosed is £337,000.

Whose accounts are these?

The accounts are held by a wide range of people from people who are now retired to senior figures in the City, to criminals of various sizes.  They will doubtless be from all parts of the UK.

My own experience as a Tax Inspector, and more recently as a tax consultant, tells me that people in Northern Ireland have a particular attraction to putting their money in Jersey, Guernsey or the Isle of Man.

Should everyone named be scared?

Absolutely not.  There is nothing illegal in having money in Jersey or anywhere else offshore.  Wat is illegal is not paying the right UK tax.  The tradition of banking secrecy surrounding the Channel Islands, Switzerland, Leichtenstein and the Isle of Man has encouraged certain behaviour.  This behaviour may, in itself, be illegal.

So who has something to fear?

You should worry if the existence of your money offshore points to some form of illegal activity, including tax evasion.  This could mean:

  • The source of the money invested was not properly declared and taxed, or
  • The means of obtaining the money invested was itself criminal (drugs, guns, bribery etc), or
  • The interest earned on the accounts was not declared.

This last point is interesting.  We help a lot of people to declare offshore savings and income, sometimes going back many years.  In some cases the original source of the money is completely legit.  For example the life insurance when your spouse died, or a transfer from a UK savings account.  Where people have come unstuck is that once the legal money was offshore they failed to declare the interest it earned.  That then becomes illegal tax evasion.

If you have an undeclared offshore account…

Now is the time to confess to HMRC – that is before they come to you.  In general you will be given an easier time if you come forward to HMRC to tell them something was wrong with your tax affairs.  You will also generally pay a lower penalty – that is what is added to the bill as a percentage of the tax you owe.

Who will help me with this?

I would say a person who declares offshore income without professional help has a fool for a client.  This is a case where expert help may save you thousands, and will get the matter closed more quickly. (These are stressful experiences.)  You may feel that your regular accountant does not have the practice and expertise in handling such tax investigations.  It is for this reason that we are often brought in.  When the case is closed we then hand the client back to the regular accountant to continue with routine tax returns and preparing of business accounts.

And if I am on HMRC’s list and do nothing?

Then you simply check the post every morning wondering when HMRC will write to you.  Of course they might call in person or phone your accountant.

What HMRC will NOT do is email you about your offshore account.  If you get an email from HMRC with an allegation (or good news about a refund) then the email is false and should be reported by forwarding it to phishing@hmrc.gsi.gov.uk

This is just the latest of a range of banking disclosures HMRC has received from whistleblowers – some of whom were paid substantial rewards.  (See video here). It seems this is likely to continue and whoever still has offshore money hidden should be afraid.

 

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080. He and his former Tax Inspector wife Felicity Huston specialise in handling tax investigations and disclosures to HMRC.

Adrian also appears on TV radio and in the press commenting on tax matters. See www.YouTube.com/HustonTV 

Isle of Man / Guernsey banks handing info to HMRC

Letters received in recent days will have caused a few people to choke on their Corn-Flakes. The banks in the Isle of Man and Guernsey are about to pass details for the first time to the UK tax people – the feared HMRC. New clients have already come to us bearing these bank letters and wanting to come clean to HMRC. Wise move.

This comes about because the Isle of Man became the first offshore territory to implement the automatic exchange of information within the EU. This it has done to show it wants nothing to do with tax evasion. Guernsey is also passing information to HMRC. (Jersey has instead upped the tax they deduct to 35%, preserving confidentiality…for now.)

Until now if you had money in the Isle of Man or Guernsey you had two choices – let your details be passed to the UK HMRC – and get your interest paid gross, or maintain your secrecy and have some tax deducted by the IoM/Guernsey bank. Those days are gone.

The banks must now inform HMRC of your details and the interest you have earned. These new rules started from July 2011 and the first notification will be of interest earned in the year to 5 April 2012.

This raises an interesting point. You may be thinking that if the interest is small HMRC will leave you alone. Unlikely. The banks have recently dropped their savings interest rates to pitiful levels. 0.1% per year is not unknown. This means that even though the interest you got was tiny, it could suggest to HMRC that you are sitting on a much larger pile of cash.

For example of your Isle of Man interest was just £100, that could have been earned from a deposit of £100,000.

The other thing is that HMRC can go back 20 years. So long as they know you have money offshore, which you haven’t told them about, they will assume that the undeclared income is bigger in earlier years.

HMRC will also be very interested in the original source of the money. If it was invested in the past 20 years then you might also owe tax on that. For example if you did some consultancy work and put the money offshore. The income should have been taxed when earned and so HMRC would want their money.

Good news, though, for the typical offshore investor. Most people opened these accounts in the 1980s and 1990s. Money lodged over 20 years ago cannot be taxed by HMRC – they are too late. So the only thing to be taxed in the interest received in the past 20 years.

Don’t be worrying about going to jail. Unless HMRC has previously investigated you, and through that you continued to hide an offshore account, they will just take money off you. Tax, interest and penalties.

Our firm has been specialising in tax investigations like these for 20 years, and so can reassure you that we can help out even where the information is incomplete. We have built up a database of typical offshore interest rates. Thus the fact that you may be missing some or many bank statements will not stop us sorting out your tax.

The clock is ticking until all holders of undeclared Isle of Man and Guernsey accounts get a letter from HMRC. Now that really will make them choke on their Corn-Flakes!

Trust me – as the Tax Inspector in the Harry Redknapp case said – you will get an easier ride if you approach HMRC before they approach you. Don’t do it alone though!

Read more about what to do if you missed the offshore tax amnesties – whether to speak up or keep quiethere.

Is this a tax investigation? read here

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080.