HM Revenue & Customs (HMRC) recently announced its intention to launch a taskforce aimed at bringing in additional tax revenues from the London legal profession. To commence such an undertaking must mean that HMRC regards there to be significant risks of tax losses to the exchequer from this sector.
Previous taskforces launched included attacks on plumbers, heating engineers, scrap-metal dealers, online traders, pubs and restaurants. The only other group of professionals specifically targeted were ‘medical practitioners’ although this was done through the so-called Tax Health Plan facility. This was not a taskforce, but rather a mini disclosure facility which raised more than £10m from some 1,500 voluntary disclosures, of which some £1m alone was collected from one doctor and £300,000 from one dentist.
Unfortunately, the work of the legal profession taskforce will not bestow any preferential benefits upon potential offenders such as a restricted disclosure period, a reduced monetary penalty or guaranteed immunity from prosecution. In fact, the situation is quite the reverse for any lawyer who has either underpaid or not paid the correct amount of tax.
As with accountants, former inspectors of taxes and anyone involved in the administration of taxes, a higher standard of behaviour is expected from members of the legal profession. It can be expected therefore that in the more serious cases, HMRC will launch criminal prosecutions where the amounts or circumstances dictate, or where it is believed that a prosecution could send out a warning to others.
Most seriously will be if HMRC, as a result of information already held or gathered as a result of enquiries to be made, allege suspected tax fraud and work the investigation under Code of Practice 9 (the ‘Contractual Disclosure Facility’, or CDF). Not only will this prevent lawyers using other amnesties with a range of favourable tax treatments, but also the only means of obtaining guaranteed immunity from prosecution will be to sign a statement ‘confessing’ to tax fraud. This may well oblige individuals to make reports to the Solicitors Regulation Authority, which at best would result in damaging admonishment, and at worst could lead to being struck off.
There is still time for action though and, if individuals are aware of deliberate non-payment of taxes, or purposeful overstatement of expenses or intentional failure to disclose income sources, they may potentially be able to correct these oversights. The Liechtenstein disclosure facility affords guaranteed and full immunity from prosecution for tax offences to those making a disclosure through it. Lawyers should not be put off by the ‘Liechtenstein’ label for it is not necessary to have any previous connection with the principality.
All that will be needed is an historic overseas asset (bank account, property, shares etc) not acquired in the UK (for instance, a Channel Island bank account opened from a bank’s UK branch would not qualify), and a current connection to Liechtenstein which can now be established, inter alia, by opening a bank account in Liechtenstein.
Finally, mention should also be made of the latest block of information to find its way into the hands of the UK taxman – namely, 4,388 HSBC Jersey bank accounts registered to UK addresses supplied by an unnamed whistleblower, as revealed by the Daily Telegraph in its 9 November 2012 edition. If HMRC uses this data as it did that obtained from HSBC Geneva a few years ago, the department will investigate a significant percentage using Code of Practice 9 without any informal opportunity to come forward first voluntarily.