HMRC issued a press release on 30 June 2015 announcing a taskforce targetting wealthy tax cheats in Northern Ireland. The taskforce type approach is something HMRC has been using successfully in other parts of the UK to target specific sectors and industries for some time. Indeed a similar taskforce was launched on 3 August 2015 to target wealthy tax cheats in Scotland. There have been a number of criminal prosecutions as a result of the initial work undertaken by these taskforces.

The taskforce will specifically target people with so-called, “badges of wealth” such as large houses, second homes, boats, undeclared offshore bank accounts and other trappings of a high-spending lifestyle.

HMRC will be able to use Land Registry, other online records and asset-recording databases to cross reference wealth indicators with the data HMRC hold about their owners and their tax affairs. Those taxpayers whose lifestyles do not match the level of taxes being paid will then be targeted.

From houses, second homes and exotic motorcars, to boats, bank accounts and racehorses, there is virtually no asset that doesn’t leave a digital fingerprint – and they also have a value that HMRC can set against what their owners say they earned and the tax they paid.

The HMRC taskforce believes it can recover around £18 million from Northern Ireland taxpayers using specialist officers and data gathering technology.

This is technology meets tax-evasion and past performance suggests that HMRC will be the likely winner.

Taskforces are triggered where HMRC have knowledge of specific sectors and/or locations where there is evidence of tax evasion and fraud. HMRC have a finite staff resource and therefore tend to use that resource to target sectors and locations that will maximise their investment. A high target of £18 million has been set for the taskforce which indicates that HMRC is confident that it can claw back £18 million of unpaid tax. The similar taskforce in Scotland has a target of nearly £ 4.5 million.

Historically there have been only 4 taskforces targeting Northern Ireland which have been in the following sectors/areas:-

• Hair and Beauty sector – July 2012 – target £2.5 million
• Tax Evasion – February 2013 – £3.45 million
• Restaurants sector – May 2013 – target £2.9 million
• Fraudulent VAT Repayment claims – October 2013 – target of £7 million (including Scotland)

It seems to indicate HMRC believe that there is nearly 4 times more undisclosed income from wealthy tax cheats in Northern Ireland than in Scotland. The target for the current taskforce is the highest target of any taskforce yet for Northern Ireland and suggests that HMRC may have some idea of the sectors, businesses and maybe even some of the people they want to talk to.

HMRC taskforce teams tend to arrive unannounced at business and commercial premises to examine records, assets and undertake investigations into asset ownership, taxpayer’s income and financial transactions and bank accounts.

The department is increasingly looking towards criminal investigations, hefty fines and, in extreme cases custodial sentences, for those accused of significant tax evasion.

There have already been a number of successful criminal prosecutions as a result of the initial work undertaken by these taskforces.

The case of Dr Francis Gerard D’Arcy earlier this year highlights the consequences of not declaring all income. Dr D’Arcy didn’t declare income as a private ear specialist consultant between 2008 and 2012. HMRC’s press release on 23 April 2015 states that the doctor “evaded £700,000 in taxes … was fined £230,000 and received four concurrent, two-year jail sentences, suspended for three years.” It was reported that the judge only suspended the prison term due to Dr D’Arcy’s wife’s medical condition.

In March 2015, HMRC published a policy paper on “Tackling Tax Evasion and Avoidance”. It set out the UK government’s attitude towards tax evasion and revisited the terms of the current tax disclosure facilities on offer for those who are not fully tax compliant but who want to come clean. That paper concluded that all existing facilities will close early at 31 December 2015. They will be replaced by a new but less generous facility that will run from the start of 2016 to mid-2017. The new disclosure facility will charge higher penalties and no guarantee of immunity from criminal prosecutions will be offered. This is a clear indication that attitudes towards tax evasion continue to harden with penalties for non-compliance increasing.

HMRC figures published in the policy paper “2010 to 2015 government policy: tax evasion and avoidance” (updated on 8 May 2015) state that:-

• £917 million investment was allocated in 2010 by the government to collect additional taxes
• The target was £7 billion additional revenue by 2015
• £77 million additional investment was allocated in 2012
• The additional investment was for specific additional taskforces to reduce tax avoidance and tax evasion
• £150 million additional investment was allocated by the government in the December 2013 Autumn Statement
• The additional investment was to spend on reducing tax avoidance and tax evasion as well as fraud, error and debt in the tax credits system.
• The number of people prosecuted for evading tax has increased from 165 people in 2010/11 to 1,165 people in 2014/15
• More than 60 regional taskforces across the UK have been set up since May 2011 bringing in more than £96 million and 80 criminal investigation cases.
• HMRC criminal investigations teams brought in more than £1 billion in receipts and revenue loss prevention in 2012/13
• Since 2007, HMRC campaigns have collected over £610 million in tax from people coming to them and £395 million from a large number of follow up activities.

This policy paper clearly set out the government’s attitude and approach to those people “working” in the ‘hidden economy’. The aim is to change people’s behavior by:-

• Providing support to make it easier to be tax compliant
• Identifying those with sources of income not already being reported to HMRC, such as rental income, by using data already held by third parties (e.g. Land Registry)
• Launching campaigns to encourage people to voluntarily disclose previously undeclared income
• Using taskforces to target specific industries and/or locations including those with hidden wealth such as offshore bank accounts and lifestyles beyond their reported income

The message is clear that now is the time to make a disclosure of previously undeclared income. Any future HMRC campaign from 1 January 2016 will not be as generous. However anyone not availing of a current disclosure facility who is subsequently investigated by HMRC will pay higher penalties and face the possibility of prosecution. This is also the case for persons making a voluntary disclosure after 1 January 2016.

Anyone in Northern Ireland whose affairs won’t stand taskforce scrutiny, should make a disclosure as soon as possible or risk facing a detailed, costly and potentially painful HMRC investigation. HMRC policy is to prosecute certain taxpayers to act as a deterrent to others. They therefore welcome and promote publicity of criminal investigation cases following successful outcomes. The taskforce approach is not only to bring in additional revenue but to encourage compliant behaviour from taxpayers.

The most recent example of HMRC’s approach is the publicised HMRC morning visits to 8 business premises across Northern Ireland on 25 September 2015 as part of a taskforce to check that taxi operators and drivers have paid the tax they owe. HMRC lifted the business records for examination and issued a press release at 12.40 pm on the same day. This was then picked up and reported by local newspapers. It is important to note that the first step to making a disclosure using the existing disclosure facilities is to tell HMRC that a disclosure will be made. No details of the undisclosed income or the tax owed need to be supplied at this stage. The actual disclosure has to be made within 4 months of the date that HMRC have issued a notification acknowledgement.

There is now a short timeframe to use existing disclosure opportunities before they end in December 2015 and so anyone who wants to make a disclosure needs to decide how to proceed in the near future.

However, anyone who wants to make a disclosure before HMRC arrives on the doorstep should carefully consider the most appropriate way in which to come forward. This can include taking professional advice and/or using the disclosure facilities currently offered by HMRC.

31 December 2015 is only a short time away.

Denise Heaney is a Senior Tax Manager with PwC Northern Ireland specialising in personal tax and employment solutions.

Email: denise.heaney@uk.pwc.com

Tele: +44 (0) 28 8775 4436

Website: www.pwc.co.uk