What are the "Affluent Unit" (AU) and the "Offshore Co-Ordination Unit" (OCU)?
Although they are separate units, it is anticipated that the AU and OCU will work closely together. The AU is to comprise of 200 "experts" from a variety of teams, applying a 'coordinated approach' to dealing with corporate entities, residence and domicile issues and trusts and estates. HMRC states that the AU will employ "new and innovative risk assessment techniques to identify areas where wealthy individuals are avoiding and evading taxes and duties". Initially the OCU is to comprise 100 offshore tax investigators. HMRC states that the OCU "will look to fully exploit the increasing amount of offshore information at HMRC's disposal, including bank account data."
Who is affected?
Initially the AU was charged with reviewing the tax affairs of the UK's top one percent of wealthy individuals, some 350,000 people who each have wealth of at least £2.5m and/or pay (or should pay) income tax at the 50 percent rate.
The unit is being expanded to deal with taxpayers with a net worth of £1m instead of the previous £2.5m. An extra 100 inspectors and specialists will be recruited to cover the tax affairs of 200,000 more individuals taking the total to over 500,000 of the wealthiest people in the country.
The unit is intended to operate in addition to the High Net Worth Unit (HNWU), which was set up in 2009 to review the personal tax affairs of the 5,000 wealthiest people in the UK, each with a total wealth of at least £20m.
In the initial stages HMRC has indicated it is likely to target wealthy individuals who own land and property abroad as well as specific groups of individuals such as commodity traders and people holding offshore accounts, through the use of "sophisticated data mining techniques".
What are the objectives of the Units?
In an age of austerity, HMRC has placed a heavy focus on reducing the ‘tax gap’ by seeking to recover a further £7bn per annum of tax lost through evasion and avoidance over the next four years.
The new units, along with the HNWU, who in 2010/11 collected an additional £162m from their enquiry work, is demonstrative of HMRC’s intention to concentrate its resources in investigating the affairs of High Net Worth Individuals (HNWI).
Implications for HNWIs
The establishment of the AU and OCU signals an environment where the likelihood of an enquiry from HMRC is significantly higher. For HNWIs and their advisors, the key focus should be on being prepared. By undertaking reviews of their tax affairs at an early stage, in addition to substantially minimising future compliance costs, HNWIs can gain a sense of certainty and peace of mind that a strategy is in place should HMRC choose to enquire at a later date.
KPMG is able to provide an objective opinion on whether a client’s tax affairs would be robust if HMRC challenged the position. Where a review is undertaken, if HMRC were then to ask additional questions we should be able to help achieve early resolution of the issues as much of the work will already have been undertaken. Therefore, for clients who engage our review services from an early stage, we can help maximise readiness in the event of an enquiry.
For those who have already had an enquiry opened or who have received a letter from HMRC about overseas assets, our team is on hand to assist. Our focus is on ensuring that the HMRC intervention is on track at all times. KPMG were recently instructed to act in a long running investigation which the client’s existing tax advisors were unable to resolve, where the client was incurring substantial fees over a period of approximately three years. Our private client team and tax investigation specialists were able to offer a multi-disciplinary approach, using a combination of thorough understanding of the tax legislation and engagement management, giving HMRC the necessary assurance at each stage that all risks had been cleared. The final settlement was less than five percent of the £20m that HMRC had originally claimed was due and settlement was achieved within four months.
For more information please speak to your local KPMG Private Client Advisor or contact Greg Limb.