Offshore Tax Investigations

Practical Advice For Professional Advisors

Tip 1:  Brief yourself first

Keep abreast of any relevant HMRC guidance.  For example the FAQ’s on Liechtenstein Disclosure Facility (‘LDF’), which are periodically updated as the situation evolves.  We try to link the latest versions of relevant HMRC FAQ’s on our website, but sometimes even HMRC’s advice is not right up to date and we can give you additional insights. So if you are not sure about any aspect, or even if you would just like the comfort of a second opinion, call us for a free informal discussion.

Tip 2:  Tell all your clients about HMRC facilities

You must notify all your clients about the opportunities.  Even though NDO has finished, there is still the favourable regime of the LDF. Do not assume that you don’t have any clients in that category.  HMRC is expecting 500,000 notifications from its latest information orders, so on the law of averages that’s 50 clients per accountancy firm! Even if clients do not currently have funds in Liechtenstein they may still be able to benefit from the LDF by moving funds there.

Professional commentators are agreed that accountants who fail to tell their clients risk getting sued for additional costs and penalties incurred by clients who miss the opportunity.

To save you time, we have prepared a tactfully worded free standard letter for issue to clients, which has been well received by dozens of practices.  You are free to amend it in any way.  If you would like a copy please email tony.borman@covertax.co.uk

Tip 3:  Be aware of the human factor

Tax investigations and disclosures frequently cause professional relationship problems that can culminate in loss of the client due to breakdown of trust, embarrassment, or scapegoating of the advisor.

Every undeclared offshore account has its underlying story, and many clients dread the prospect of the facts coming to light.  If a director has diverted company profits without the knowledge of other directors or shareholders, the tax consequences are the least of his worries.  He could well end up losing his job, his shareholding, paying damages or even facing criminal proceedings.  Offshore ‘nest eggs’ are often a source of marital strife if the other spouse (usually the wife) has been kept in the dark.  Sometimes an undeclared ‘family nest egg’ passes down by unofficial inheritance and so the next generation gets saddled with the sins of the fathers. 
Sometimes a person may simply be too ashamed of what they have done to tell their accountant.  Maybe you play golf together, maybe you are the godfather to his children, maybe you go to the same church. And so on.

All the above are real examples which I have dealt with. And I can tell you frankly that, compared to the human factor, sorting out the tax is child’s play.

The clients with the biggest worries are probably going to take the most persuading to disclose.  And when they do come forward, or hint that there may be an issue, remember to approach the subject first of all from the perspective of the underlying story.  The tax can be sorted out at the end.  Find out what happened and consider also the potential non-tax implications, so that you can give your client all round advice and the reassurance they probably need.

Sometimes it’s advantageous to hand the case over to an independent expert who can tidy things up without you having to be in the centre of the crisis.  Investigations are more about people and the situations they get into than they are about tax comps and penalty percentages.

Tip 4:  A multi-tax perspective is needed

Any tax disclosure will need to address all relevant taxes.  Have you got the technical expertise?   Example:  extractive irregularities involving a company owned by a businessman of non-UK ethnicity where the funds have been placed in a personal offshore account and then (as is commonplace) subsequently settled in a trust could involve reviewing VAT, CT, S419, IT, IHT, NIC, residence, domicile and remittance basis. But apart from this, there’s no problem!

You also need to consider whether any specialist you are intending to use can address all taxes.  Many are specialists in only a few.  VAT and capital taxes are often inadequately addressed.

 Covertax has a multi-disciplinary team capable of dealing with all the aspects you may encounter.  Call us for a free no-obligation discussion.

Tip 5:  Establish the Facts

This is detailed and time consuming forensic accounting, and if you are not set up to do it then, apart from the PI risk, it will be a significant distraction from maintaining an excellent service to the rest of your clients.

Properly establishing the facts is the foundation for everything that follows.  Technical advice and computations are unreliable if the facts they are based upon have not been established. It is very common for us to see cases at an advanced stage of dispute with HMRC where key facts have not been properly established.

For offshore cases, getting access to bank statements, trust deeds, company accounts, etc for all offshore assets, may take considerable time, so the work needs to be started as soon as possible.

Where corroboration of the facts is not possible (eg because the bank is not able to supply copy statements for older years), the evidence will take the form of statements by your client and best estimates.  Make sure these are clearly documented so that HMRC can follow the reasoning of any estimates if they later audit the disclosure.

Tip 6:  Good quality Working Papers are essential

Clients who did not come forward under NDO can expect a more thorough audit of any disclosure. So you need to have high quality working papers files that show how every figure disclosed has been arrived at.

Clear and orderly working papers will enable HMRC to conclude any subsequent enquiries faster, and hence with lower cost to your client.  I know this sounds elementary, but ask yourself if you would be happy for HMRC to examine your working papers file.

Tip 7:  Are you comfortable with HMRC checking your work?

Do you feel comfortable with having your work and papers examined by hard-nosed specialist investigators?  Are you confident about negotiating with them face to face or standing up to them if they won’t accept your figures? If you don’t have the time or inclination for that kind of work it would be better to appoint a specialist from the outset.  That way, the specialist will be defending their work, not yours.  Disclosures prepared by specialist firms may also be less likely to be audited by HMRC where they know that the firm preparing the disclosure has extensive experience.

Tip 8:  Be sure you have the resources. 

Most disclosures will involve the agreement of a timescale. If you overrun, you run the risk that your client’s bill from the taxman will be higher.  No prizes for guessing who your client will expect to pick up that tab. The average local district tax investigation takes over a year to settle.  Complex investigations can easily take much longer. 

If you find yourself struggling to keep up with routine compliance cycle it would be in your client’s best interest to consider referring them to someone who has the resources.  At Covertax we do not undertake any tax compliance or accounting work. We are entirely dedicated to special tax support work and we are geared up to turn around investigation work within short timescales.

Tip 9:  Specialist’s fees do not have to be ridiculous 

Many practitioners would like to involve a specialist, but are afraid of the fees that might be charged.  Because of our wide experience, at Covertax we are able to offer fixed fees on most assignments, and we are flexible in our approach.  We do not insist on taking over the whole job.  We are happy to work alongside you, supplementing your expertise where appropriate.

Of course we need to be paid, but we believe our expertise delivers value for money. If you would like to get us involved, but are unsure about costs, please call Tony Borman for a frank discussion.

Tip 10:  Choose a safe pair of hands

If you are going to involve a specialist, you need to know that your client is safe in their hands. At Covertax we pride ourselves both in the quality of our technical work and, equally importantly, in the personal and professional support we offer to you and your clients throughout the process.

As well as being experts in investigations, we are Chartered Tax Advisors – the ‘gold standard’ in tax advice. And 90% of our work comes from repeat referrals from accountants and leading Insurance Companies.

Without exception, your clients will feel better for having dealt with the problem. Call 0845 643 5450 now for a no-obligation discussion on how we can help you and your clients or click here to contact us.