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Tax Investigation Dispute

Summary: Negotiating with HMRC is not easy if you are under tax investigation.

Background: Hervé Falciani was a computer systems engineer at HSBC Private Bank in Geneva. In 2008 he fled Switzerland having stolen the details of HSBC international account holders who he alleged were tax evaders in their own respective countries and therefore, by implication, HSBC was a knowing collaborator to the crime.

I heard on more than one occasion that Falciani’s life was in real danger. To try and save his own skin, Falciani offered the list to any country willing to give him sanctuary. Inevitably, the UK tax authorities got hold of the list.

In 2009 the Liechtenstein Disclosure Facility (LDF) came into being which enabled UK citizens to “voluntarily” come clean and declare previously undisclosed overseas assets to HMRC, thereby allowing individuals to “regularise” their tax affairs. It was irrelevant that an individual did not hold an HSBC Private Bank account in Switzerland. HMRC was now on a fishing expedition making it known that all individuals holding undeclared overseas bank accounts were under the spotlight.

By voluntarily coming forward under the LDF system, individuals would be fined 10% of the tax due plus interest and penalties for the previous ten years only. By not taking advantage of the LDF, and if suspected by HMRC, an aggressive tax investigation was started by a specialist unit. Those individuals ran the risk of receiving a demand from HMRC for 100% of the tax due plus interest and penalties for the previous twenty years, not the previous ten.

I have been involved in a number of cases whereby the tax, interest and penalties due under the LDF amounted to several hundreds of thousands of pounds and in certain cases several millions of pounds. In certain cases, individuals were put under the most severe financial pressure bordering on having to declare bankruptcy. As a general rule, it is not possible to negotiate with HMRC. My involvement in these particular cases demonstrated that HMRC is pragmatic. To coin a phrase, you cannot get blood out of a stone! In those situations I have helped negotiate a realistic repayment schedule whereby a proportion of the amount due was paid on account and the balance extended over the following three to five years.

The other side of the LDF coin concerns individuals who have brought their affairs up to date by paying HMRC the tax, interest and penalties due for the ten year period, and then refused to pay the professionals who helped them along the way. These cases all have the same theme – the individuals concerned just want to do a deal with the professionals and discount the fees after the event. It all comes down to how much the professional is willing to accept to draw a line and close the file.