HMRC receives a vast amount of information from tax authorities around the world and then uses its supercomputer, Connect, to process that information and identify who to target with a tax investigation. The information received from HMRC’s global partners are the reason so many enquiry and compliance checks are opened.
Two of the main knowledge sharing initiatives which HMRC has been an active participant in over recent years includes the OECD led Common Reporting Standard (CRS) and J5.
Common Reporting Standard (CRS)
The CRS was developed in response to the G20 nations desire to develop a global standard for the automatic exchange of financial information. The UK was one of the so-called ‘early adopters’ and began to exchange information with other jurisdictions from 2017.
The purpose of automatically exchanging information relating to taxpayers is said to be to combat opportunities for tax evasion.
The CRS requires financial institutions based in CRS jurisdictions around the world to provide information about their customers to their respective tax authorities. This information is then shared automatically any other relevant CRS jurisdiction on an annual basis.
Financial institutions are required to identify customers who are tax resident in one country, with accounts held in another. The information shared between the tax authorities for each account are the individual’s:
- Date and place of birth
- Tax identification number (if applicable)
- Account number
- Account name or identifying number
- Account balance
- Interest and dividends received within the account in the previous calendar year.
The information HMRC receives is then compared to the disclosures made, typically through self-assessment, by UK resident taxpayers.
More than 90 jurisdictions have implemented CRS and we see many examples of HMRC writing to UK resident taxpayers who hold accounts overseas. Many clients are not aware of how complex the UK’s tax reporting rules are and encouraged to take contemporaneous advice. However, it is also the case that unintended mistakes have already occurred and the taxpayer should seek advice on how to make a voluntary disclosure to HMRC to correct historic issues.
For those rarer cases where the individual deliberately chose not to disclose their income and gains in the UK when they knew they ought to have done, consideration of whether Code of Practice 9 is appropriate is strongly recommended.
The Joint Chief of Global Tax Enforcement, also known as the J5, was formed in 2018 on the recommendation of the OECD and brings together the tax authorities from Australia, Canada, the Netherlands, the US and the UK. The purpose of the J5 is to work collaboratively to tackle tax crime and money laundering. This is done through gathering information, sharing intelligence, conducting coordinated investigations, and improving the capability of the J5 tax authorities.
The current focus of the J5 is identify and take action against so-called “professional enablers” and cybercrime, including those looking to use cryptocurrency to facilitate tax evasion. HMRC, in their capacity as the UK’s tax authority, shares and receives intelligence and expertise with its four counterparts to target those who profit from enabling and perpetrating tax crime. Tax investigations involving the J5 have already led to arrests, criminal convictions, and intrusive tax investigations all around the world, including the UK.
Given the volume of information and the quality of the intelligence flowing into HMRC is ever increasing, the need to come forward to make a voluntary disclosure has never been greater.
Menzies’ team offer the best advice regardless of the seriousness of the tax problem.