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Tax Advisers could face action even for inherited clients

Following the latest round of regulation announced in the budget to prevent tax avoidance/tax evasion, advisers could face criminal charges if they fail to prevent tax evasion by inherited clients, a lawyer has warned.

HMRC is consulting on a new corporate criminal offence for firms failing to prevent tax evasion, which will implicate advisers who have clients with offshore bank accounts, said lawyer Jason Collins.

Tax evasion as, opposed to avoidance, is a criminal activity and criminal sanctions are already available against those who facilitate or encourage tax evasion.

In the new proposals there will be no more “passing the buck” for advisers, he said. Currently firms and their employees have to report any suspicious activity by their clients and once they’ve done that, responsibility passes to HMRC. However, under the new proposals that will no longer be enough, firms won’t be exonerated by simply informing the tax office, they will be held to account for any client tax evasion they have failed to prevent, including structures put in place by former advisers of current clients.

Therefore if advisers, when reviewing client’s affairs, come across tax evasion structures or off shore bank accounts put in place by previous advisers they may be under an obligation to report the client.

In a paper setting out the government’s approach to tax avoidance and evasion published on 19 March, it said it will introduce a new strict liability offence for people who have not paid their tax on offshore income and for those who failed to prevent it. Strict liability means the government will not have to prove a person’s intent to evade tax, only that they have done it.

The new measure will include a fine equivalent to that paid by the individual evading tax, and a public naming and shaming. The paper said: “The government today announces it will create a new offence of corporate failure to prevent tax evasion or the facilitation of tax evasion, following consultation. “This government’s message is clear to those that are hiding undeclared income offshore or are enabling offshore tax evasion – HMRC is closing in and anyone found engaging in this behaviour will face serious consequences when found.”

The tax office also plans to create new rules to make it a requirement for advisers to inform their clients of its new initiatives and powers. HMRC is also stepping up its efforts to tackle tax avoidance in the UK. It will make greater use of new powers gained last year, which allow it to ask those it deems guilty of tax avoidance to pay upfront.

It will send out 21,000 more ‘accelerated payment’ notices than previously announced, predominantly to people it has already identified. By the end of 2016, 64,000 users of avoidance schemes will have been required to pay tax upfront, and by the end of 2019/20 the measure will have brought forward over £5.5 billion in payments to the Exchequer, it said.

This is going to lead to many people receive unexpected tax demands for tax which they thought had been sorted out by their advisers. It could that people believed their advisers were recommending legitimate ways to mitigate tax when in fact they were paying to enter tax avoidance schemes.

Many of the schemes may have been used years ago and as well as the amount of tax people will have to pay interest on the tax due from the time it was due. This in itself can be massive and cause serious cash flow issues for those receiving the demands.

If you have been contacted by HMRC or are concerned that you maybe in the near future then our specialist team can assist mitigate your losses and get you the expert advice you need to deal with HMRC. Even though you may have a claim against the person / company who setup the tax avoidance scheme, HMRC will not wait until that is resolved before you pay them what is due so it is imperative that all aspects of your case are looked at.

In previous years there were large amounts of tax avoidance schemes in operation to help avoid corporation tax and stamp duty. Our team understand these schemes, how they work and what your adviser should have told you are the time so we are well placed to assist at what can be an extremely worrying time.