Thames Water to shed offshore subsidiary structure

Thames Water is reviewing its business structure after controversy over its use of offshore subsidiary companies to reduce its tax burden, according to the Guardian.

The water company has appointed Ian Marchant, formerly of SSE, as chairman with a mission to close its Cayman Islands subsidiary companies. Thames Water has not paid corporation tax in the UK for the last 10 years, but the company maintains that the offshore companies do not provide any tax benefits. Instead, it is claimed the Cayman subsidiaries are used to raise funds through bonds for an infrastructure investment programme.

Thames Water is formed from a structure of nine companies. The firm says subsidiaries “have always been fully registered in the UK for tax purposes but no longer serve their original purpose of enabling smoother access to global bond markets.”

The company says it has not been liable to pay corporation tax for the last decade due to deferments associated with its capital investment in schemes such as a £4.2bn sewer which travels for 15 miles beneath the Thames.

Nonetheless, the company has admitted that its offshore structure “just looks wrong”. Critics have pointed out that the company has paid £1.2bn in dividends in the last decade. Thames Water also faced a £20.3m fine in March 2017 for large-scale leaks of sewage into the Thames and nearby land.

Following privatisation in 1989, Thames Water was sold to a consortium led by Macquarie, an Australian investment bank. The bank sold its final holding in the company in 2017, leaving the company with £10.75bn in debt financing. The biggest shareholder of the company is now Omers, a Canadian pension fund.

HSBC agrees to settle French tax evasion case for €300m

HSBC is to pay €300m (£266m) to French authorities in order to settle a long-running investigation into tax evasion by French customers of the bank, according to BBC News.

The allegation from the French financial prosecutor was that HSBC’s Swiss private banking unit assisted clients who wished to evade tax. The bank has acknowledged to ‘control weaknesses’ and said it was taking steps to address them.

Payment of the fine will conclude action against HSBC but it is still possible that two former legal directors could face further legal claims.

The investigation started in 2014 following the leak of data by a former IT employee. The records detailed transactions involving thousands of French customers. The French prosecutor claimed that €1.6tn of assets were involved in tax evasion schemes.

The settlement is the first deal to be struck under French rules introduced in 2016 which allow banks to settle claims without any finding of guilt. HSBC said it was glad to resolve “this legacy investigation which relates to conduct that took place many years ago.”

EU report: tax Google on revenue, not profits

An EU report claims that online giants such as Google and Facebook could be responsible for lost tax revenues of up to 5.4bn Euros between 2013 and 2015, according to Reuters.

The EU is considering corporate tax reforms which would require internet companies to pay more in tax. Author of the EU report Paul Tang says the companies “minimize the overall tax burden in the EU by routing all revenues to low-tax member states such as Ireland and Luxembourg.”

This week EU finance ministers will hold a two-day meeting in Tallinn, Estonia to discuss how large online companies can be made to pay more tax on to European nations.

The main focus of the EU report is on Facebook and Google, which is now part of the Alphabet parent company. The two US-based companies record their revenues in Ireland, which enables them to avoid higher taxes applicable in other EU member states.

Google pays taxes of up to 9% of its revenue in countries outside the EU, but within the bloc the figure falls to as low as 0.82%.

France, Germany, Italy and Spain have proposed that companies should be taxed on their revenues rather than their profits. Such a move would also increase taxes payable by Amazon, which also has an EU tax residence in Luxembourg and was largely exempt from tax between 2013-2015.

 

How Might the Chancellor’s Autumn Statement Affect Landlords?

The year 2016 has definitely been a turbulent one for Britons, especially landlords. The property market is still reeling from the result of the EU referendum in addition to some of the new changes made by former Chancellor, George Osborne.

In November’s Autumn Statement, Osborne proclaimed that from April 2016, people in England and Wales will be expected to pay a 3% surcharge on their stamp duty band. The extra charges will be used to raise an excess of £1 billion for the treasury by 2021. This wasn’t received happily by landlords. The other changes revealed by the Chancellor included a prolonged Help to Buy scheme in London, and more funds for the Starter Homes initiative.

Landlords in the UK expressed disappointment at the perceived indifference to their plight from the Chancellor’s office regarding the 3% surcharge. Many believe it would quash investment in buy-to-let property. According to a survey conducted by Towergate, 59.6% of UK adults agreed that the new increase in stamp duty will stop them from buying a second property to let.

How it affects landlords

The stamp duty surcharge raised each band by 3 per cent. This means that if a property has a value between £125,000 and £250,000, and the stamp duty is 2 per cent, landlords of buy-to-let properties will pay 5%. Hence, for the standard buy-to-let purchase of £184,000, prospective landlords will have to pay an extra £5,520. This charge is exempt for commercial property investors with more than 15 properties.

Owners of buy-to-let properties were also hit by changes in the rules of Capital Gains Tax (CGT). According to the new law, starting April 2019, landlords will be expected to pay any CGT that is due within 30 days of selling a property, instead of waiting until the end of the tax year.

In addition to this, landlords will get a reduced rate of tax relief. The chancellor announced that from 2017, they will only be able to claim the basic 20 per cent tax relief – a reduction from the previous 40 per cent – on their mortgage fees.

Already, the fallout of the announcement led banks and other mortgage lenders to increase their lending criteria for buy-to-let homes. In subsequent events following the Brexit result, the property market is currently experiencing a decline in growth of house prices. In reaction to this, some banks have decided to limit buy-to-let lending completely.

According to Richard Sharp, an authority in the Bank of England’s committee on financial policy, the decision by banks is to enable them study the property market carefully before resuming ‘aggressive lending’.

The demand of buy-to-let borrowing has fallen sharply since, no doubt as a result of the additional surcharge.

How landlords will react

Many landlords will likely increase their property rents in a bid to pass on the cost to their tenants. The result of a survey released earlier in the year showed that 40 per cent of landlords intend to increase their rents in the coming months. Three-quarters of that figure admitted that they would do so to offset the reduced tax relief.

Government Help Scheme

In a bid to encourage home ownership and reduce housing benefits bill, the Chancellor announced that funds will be injected into the starter homes scheme. Home builders will receive a 20 per cent discount on prices £450,000 and above in London, and £250,000 in other locations.

HMRC introduces new regulations to curb tax avoidance on high value residential properties

HM Revenue and Customs (HMRC) announced today that new regulations have been established to ensure the disclosure of schemes designed and marketed to avoid paying the Annual Tax on Enveloped Dwellings, which was introduced in April this year to counter avoidance of Stamp Duty Land Tax on UK residential properties valued over GBP2m.

Companies that own high value residential properties are now required to pay an annual charge to HMRC, the UK’s tax authority. For a property valued between GBP2m and GBP5m the tax per year is GBP15,000. The charges rise to GBP140,000 for properties valued at more than GBP20m.

The Disclosure of Tax Avoidance Schemes (DOTAS) will mean that users of schemes that provide an unfair tax advantage must provide details of those schemes to HMRC, which uses the information in its compliance work. Failure to report details of these tax avoidance schemes will result in penalties of up to GBP1m. Users who fail disclose the use of a scheme on a tax return will be fined GBP100 for the first failure, GBP500 for the second and GBP1,000 for subsequent failures.

The changes to DOTAS regulations mean that the Annual Tax on Enveloped Dwellings is added to the regime where current schemes designed to reduce a user’s tax bill for income tax, corporation tax, capital gains tax, inheritance tax, national insurance contributions, stamp duty land tax and VAT must be disclosed. HMRC said these new regulations build on the work from the 2012 Lifting the Lid consultation which looked at tackling avoidance schemes.

A further measures to stop tax avoidance also requires promoters of avoidance schemes to provide HMRC with details of their client’s national insurance number and unique taxpayer reference. The provision of these details will help HMRC to detect and investigate tax avoiders. It will also be more difficult to avoid paying tax by using ‘disguised remuneration’ schemes.

Exchequer Secretary David Gauke commented:

“This Government has been clear – aggressive tax avoidance is unacceptable and will not be tolerated. The regulations we are laying mark a significant strengthening of the rules and build on the considerable work we have done to tackle not only tax avoidance schemes but also the promoters of these schemes.”

Contractors warned over looming online tax return deadline

As HM Revenue and Customs (HMRC) threatens 300,000 late filers with debt-recovery actions that could include the seizure of goods, accountancy experts have issued a warning to contractors over the looming deadline for the filing of online tax returns for 2011-12. Continue reading “Contractors warned over looming online tax return deadline”

British clients of HSBC-controlled bank in Switzerland avoid £200m in taxes

British clients of an HSBC-owned private Swiss bank that is the focus of a major HM Revenue & Customs investigation are alleged to have evaded tax by an amount likely to exceed £200m, according to a report by the Bureau of Investigative Journalism.

The potential scale of the tax loss will heighten pressure on trade minister Lord Green, who was chairman of HSBC’s private banking division during the period the HMRC is investigating. He is already facing questions from MPs about the bank’s links to Mexican drug
cartels and terrorists that came to light this month in a devastating US Senate investigation.

Emails released as part of that investigation showed Green was twice warned about compliance failures and allegations that huge sums were laundered by Mexican drug gangs through a subsidiary of HSBC.

Green, chairman and previously chief executive of HSBC until 2010, when he entered government, last week spoke of his regret at HSBC’s failures to implement anti-money laundering protocols.

Now it has emerged that the sums allegedly evaded by Britons using HSBC’s Swiss bank are massive. HMRC told the Bureau “the early indications are that the amounts are significant”.

The HMRC in 2010 received data smuggled out of HSBC by a former bank IT worker, now under arrest in Spain and facing possible extradition to Switzerland, that contained details of 6,000 UK-linked individuals, companies and trusts. Two senior tax investigators who both worked at HMRC told the Bureau the average amount evaded in the 6,000 accounts is likely to range between £33,000 and £50,000.  Three weeks ago, HMRC secured its first high profile conviction from the HSBC Swiss bank data. Property developer Michael Shanly, estimated to be worth £132m, admitted evading £430,000 in inheritance tax.

HSBC documents show that Green was chairman and a director of HSBC Private Banking Holdings (Suisse) SA for ten years from 2000 — the bank at the centre of HMRC’s investigations. It is unclear if the investigation affects the period when Green was in control.

It has been suggested wealthy Britons have placed £120bn in Swiss banks with £6bn in HSBC Swiss branches. HSBC says it does not condone tax evasion and it is the responsibility of clients to ensure they pay appropriate tax rates.

Labour shadow finance secretary Chris Leslie said: “We learn more and more each day about the network of high risk affiliates and tax haven linkages which HSBC and its senior executives were clearly familiar with. It is therefore more important than ever for those individuals now determining the future of banking culture and policy in this country to set out what they know about these things, and whether they took appropriate steps to defend the rules on tax and propriety.”

Green last week held a series of Olympic-related meetings with world business leaders to secure new contracts and investment for British companies.

Under his tenure, HSBC withstood the global economic crisis without requiring a taxpayers’ bailout. But the bank has in the past faced questions over its anti-corruption compliance. In 2010, a US Senate investigation criticised it for lax oversight of accounts held by Angolans.
HSBC, the biggest western bank in Egypt, last year faced strong criticism for its connections to the Mubarak regime.

A Church of England lay preacher, Green co-chaired the Egyptian British Business Council in 1998, which reported to then British and Egyptian prime ministers Tony Blair and Kamal Ganzouri.

The New IR35 Business Test: How Will Contractors Be Affected?

The IR35 Forum has revealed that a new business test as well as six risk scenarios will be published in April by HM Revenue & Customs. The improvements have been proposed to make the way IR35 is administered clearer; and from next month contractors and freelancers will be placed into either the low, medium, or high IR35 risk profile.

The advice will be issued to help self-employed workers regarding compliance risk. The aim of the Business Test will be to help contractors understand their position and they can use the evidence after taking the test if they are selected in an IR35 investigation.

The tests are not status tests because the legislation hasn’t been changed since it was introduced in 2000 but the proposals have attracted numerous disagreements due to the fact that industry experts claim that all freelancers cannot be categorised into a one-size fits all method.

The Forum was established by the Government to improve the administration of IR35 and to assist HMRC in identifying specific areas for development. Processes created include the new business entity tests and scenarios as well as a helpline and guidance.

Genuine contractors and consultants will not be affected by the latest changes, but aim to make IR35 easier to understand. And if they do become subject for investigation, their cases should be settled quickly with the help of the test results.

The scenarios which will be disclosed to “reduce the room for interpretation” of whether or not a contractor is in or outside the legislation. It is hoped that the scenarios will clarify the regulation and the IR35 Forum has revealed that it will develop a code of practice to educate contractors and contracting service firms.

The risk setups which will be published by HMRC in April will consist of two with a contractor inside IR35; two with a contractor outside it; a contractor who has started outside IR35 but moved inside; and the grey area of disagreement between HMRC and the Forum.

This article was written by the IR35 specialists at Nixon Williams. For more advice, visit the site today at www.nixonwilliams.com.

Bogus financial adviser jailed for tax fraud

A bogus financial adviser who fraudulently manipulated his “clients’” pension funds to avoid paying tax of over ?1.9 million has been jailed at Hull Crown Court for three years.

Colin Pearson (47) used the proceeds of the fraud to maintain a lavish lifestyle, driving expensive cars and owning luxury homes both in the UK and Cyprus including a villa on an exclusive golf resort.

Bob Gaiger. from HM Revenue & Customs, said:

“Whilst Pearson was living a life most people could only dream of, he left the individuals he conned out of pocket and without the pension funds they expected.

“HMRC will not tolerate this type of blatant fraud and will investigate and prosecute those found to be involved in stealing from the public purse. If you have any information about tax fraud please contact our 24 hour hotline on 0800 50 5000”.

Colin Pearson, who previously worked for the Food Standards Agency and held a McDonalds franchise, claimed to be a financial adviser and persuaded his “clients” to release over ?3.4 million from their pension funds. Pearson completed UK pension transfer forms on behalf of his clients to falsely claim that the funds were going abroad to avoid paying tax due on the pension withdrawals.

He provided fake documentation to register two overseas pension schemes. He then submitted the fake documents using false names, addresses, references and signatures to ensure the pension funds were released without suspicion or delay, to bank accounts that he controlled. On occasions he even made telephone calls to the UK pension companies posing as the policy holder; during one telephone call he attempted to disguise his voice with a Cypriot accent to give the impression that he was calling from overseas.

To add further legitimacy to the scam, he used articles from the internet to create a PowerPoint presentation to explain and sell the scheme to unsuspecting UK clients. He then took a cut of the funds before passing the balance onto the pensioners. In total Pearson persuaded over thirty UK pension holders to make unauthorised transfers of £3.4 million to avoid paying tax of £1.9m

On sentencing Pearson, His Honour Judge Richardson QC, said:

“You are branded a criminal, your life is utterly destroyed, and you are totally dishonest in your deceitful actions.”

He went on to say that the investigating officers did a thorough job which made the case easier to understand.

HM Revenue & Customs investigators arrested Colin Pearson in September 2009, he pleaded guilty to cheating the public purse at an earlier court hearing.

Morality demands rethink of UK-Swiss tax deal

Ministers should urgently rethink plans for a deal with Switzerland which would see UK tax evaders let off lightly while harming poor countries, says Christian Aid.

‘We fear that the agreement will be soft on the Britons who have illegally hidden billions in the Alpine tax haven but hard on developing countries, which also suffer from Swiss banking secrecy,’ said Christian Aid Director Loretta Minghella.

‘In a week when there has been a lot of talk in the UK – following the riots – of a moral deficit in society, it is extraordin­ary that the UK Government appears poised to let tax evaders off with nothing more than a regular tax bill.

‘People who have hidden money in secret Swiss bank accounts in order to evade their legal responsibi­lities to the UK will be able to escape unpunished and they won’t even have to reveal their identities to the UK taxman.’

The proposed agreement will lead to Britons with secret Swiss bank accounts starting to pay tax on them, which the Swiss will pass on to the UK – but crucially, without revealing those people’s identities.

Christian Aid believes the deal will seriously damage global efforts to curb tax dodging – a menace which it estimates costs poor countries $160 billion a year, far more than they receive in aid.

Germany is also reported to have initialed a similar deal with Switzerland.

Poor countries lack the political and economic clout to do such deals with Switzerland – but they too lose billions as a result of money being illegally hidden in tax havens.

And just like the UK, they need that money to fund vital public services such as schools, hospitals and justice systems.

Ms Minghella added: ‘I urge UK ministers to reconsider the Swiss tax deal as a matter of urgency.’

Christian Aid is calling on the UK and other G20 Governments to use their November summit meeting in Cannes to bring about an end to the tax haven secrecy exemplified by Switzerland.

Specifically, the G20 should broker a new system of automatic information exchange between Governments – including those of poor countries – to help them to detect when citizens hide wealth offshore.