Now that HMRC are recommencing compliance activity, there are six key issues which I think they’ll be focussing on over the coming months. These are
Employee Benefit Trusts and EFRBS
Dispute Resolution and ADR
The Finance Act 2017 Corporate Criminal Offence
CJRS
Offshore matters
Code of Practice 9
Employee Benefit Trusts and EFRBS structures
HMRC are currently issuing letters to resurrect settlement discussions in connection with EBT’s and EFRBS. This has been going on over the past few weeks. It appears that HMRC are intent on sticking to a 30 September deadline to reach settlement. The issues which are coming to light now seem to be at the more complex end of the spectrum. In particular I am seeing lots of situations where either no action has been taken by HMRC to recover tax on the original contributions, the sponsoring employer has been wound up or is in an insolvency process, and where trusts are currently holding investments rather than loans and therefore are not caught by the loan charge. In such cases, there is often no specific ‘call to action’ which would prompt clients to consider their position. There is therefore a risk that matters will not be properly considered in advance of the 30 September deadline unless action is taken realtively soon.
In addition, the repayment scheme for settlements involving voluntary restitution in the Finance Bill appears to have survived the various committee stages and should be enacted shortly. Although the backstop date for making repayment claims is a long way off (October 2021), I’d expect clients will want to be proactive about this and get their repayment claims in as soon as possible, particularly given current pressures on cashflow. I’m also conscious that there may be some political kick-back on this once the implications of the scheme become clearer, and with that in mind I wouldn’t want to bet that it survives another Finance Bill.
Dispute resolution and ADR
The tax tribunal has been faced with significant logistical difficulties as a result of lockdown but cases have continued to be heard remotely. However, it has been inevitable that some cases have been delayed over the past few months. With that in mind, I would expect there to be a greater willingness on the part of both clients and HMRC to resolve disputes through ADR as we come out of lockdown, both for cases which are listed for hearing at tribunal and cases which are not yet at that stage. There is no reason why ADR cannot be conducted remotely, just as it has been possible for tribunal hearings to be conducted by video-conference. Helpfully, the First Tier Tribunal issued a practice direction on 15th June which reiterates their support for the ADR process and makes clear the tribunal’s willingness to facilitate ADR even after HMRC’s Statement of Case has been received. This is a small but important step forward. Now is therefore probably a good time to be thinking about this for clients with disputes which have become entrenched.
Corporate Criminal Offence (‘CCO’)
It’s now pretty well-known that HMRC have undertaken several investigations across a variety of sectors in connection with the CCO and that they are actively looking at starting others. I expect this will be a significant area of focus for HMRC once they are able to properly mobilise the resource required to carry out these complex investigations. In the meantime, HMRC have been busy training all of their Customer Compliance Managers and all the staff in their Fraud Investigation Service teams on the offence.
A really critical point here is that, until a business has ‘reasonable prevention procedures’ in place it is highly unlikely to have a defence to the strict liability offence. There will therefore be a gap from October 2017 when the offence was enacted until the reasonable prevention procedures are in place, during which it will be really difficult to make out a defence. The timing of this is important. HMRC will now be investigating tax offences committed in periods after October 2017 in detail, and they will be actively looking at whether and how those offences have been facilitated. The most important thing which any business can do to protect itself against the very severe penalties and reputational risk associated with the offence is to carry out a risk assessment and then act on the outcome of that risk assessment as soon as possible. This does not need to be a massively time-consuming task. Indeed, one of the guiding principles for any set of reasonable prevention procedures is proportionality.
CJRS
It goes without saying that this will be a significant area of HMRC activity. I would expect HMRC to follow up on CJRS claims in the relatively near future on the basis that the infrastructure to repay overpayments and to charge penalties has now been introduced. There is also clearly going to be significant political pressure on HMRC to be seen to be policing the rules effectively. There has recently been commentary about HMRC’s intended approach to the scheme which suggests that a ‘light touch’ approach will be taken. I would be surprised if that extended to circumstances where a claim was clearly incorrect, or where it became apparent that a claim was incorrect and the error was not corrected.
I would be suggesting to clients that a review of both the claims made and the evidence to support these claims is undertaken in order to both correct errors where these have been made and ensure that it can be demonstrated that claims were made correctly. I’d also suggest that, where claims have been made on behalf of clients, a review of the basis for those claims will form an important part of an adviser’s own reasonable prevention procedures in connection with the CCO.
Offshore matters
I expect to see a greater number of challenges based on information obtained by HMRC from overseas in the coming months (some of which to be honest is likely to be wrong). Before lockdown, clients were receiving ‘nudge’ letters and this continued into April. I expect further waves of letters to be issued over the next few months. Obviously enquiries into offshore matters need to be handled very carefully. This is not least because an offshore tax error could be subject to the Requirement to Correct provisions which impose a penalty of up to 200% of the tax loss (and even more in exceptional circumstances). In turn, I think this will mean there will be an increasing focus on whether clients have a reasonable excuse for failing to correct. Numerous recent tribunal decisions demonstrate HMRC’s hard line on reasonable excuse. Although a number of taxpayers have been successful on appeal, it’s clear that persuading HMRC that a client has a reasonable excuse is going to be an uphill struggle.
Code of Practice 9
I also expect to see a greater number of enquiries opened under Code of Practice 9. Although HMRC have been clear that they have continued to work Code of Practice 9 cases over the past few months, the logistical difficulty of running a Code of Practice 9 enquiry under lockdown have clearly caused some delays. I expect that there will be pressure to open new enquiries and progress existing ones over the next few months. Interestingly, prior to lockdown, I was also seeing an increasing number of Code of Practice 9 enquiries which fell outside the traditional areas of non-compliance, which I think reflects efforts made by HMRC’s FIS teams to broaden their reach across different areas of HMRC and to bring staff into the directorate with a broad range of skills.
I also expect to see issues arising as a result of the interaction of Code of Practice 9 enquiries and enabler penalties. Those advisers who are making disclosures in respect of their own clients will need to consider the extent to which they may themselves be exposed to enabler penalties. There’s also clearly a link back to the Corporate Criminal Offence here, in that HMRC are highly likely to want to consider whether deliberate errors have been facilitated by any other parties.
