The release of the Panama Papers in 2016 which saw over 11million files leaked to the public led to sensationalist headlines across the world. From allegations of money laundering to tax evasion and corruption, news outlets jumped on the story and demanded retribution to those it claimed had committed a crime.

HMRC responded promptly to calls for better regulation and reporting by revealing that they were not only working on a ground-breaking act of information sharing between the UK, Germany, France, Spain and Italy, but also that they were in the process of implementing a new set of regulations called ‘Common Reporting Standard’ or ‘CRS’.

It is hoped that these initiatives, combined with several others that HMRC are working on, will help to prevent both large-scale and smaller-scale tax evasion and fraud in the future.

What is HMRC’s Common Reporting Standard?

CRS is a worldwide approach to facilitate the accurate disclosure of incomes and assets so that they can be taxed appropriately by the relevant countries.

The key part of CRS is that it prevents individuals or organisations from hiding income in different countries for tax avoidance purposes. Each of the 100+ countries signed up to CRS must obtain yearly data from financial institutions which are then shared with all other participating countries. This will allow HMRC and other tax authorities to get a holistic view of a person or organisation’s bank accounts and savings, no matter where in the world they may be placed.

The data to be provided includes: Personal details (name, address, country of tax residence, UTR number, account holder date of birth), the unique reference number of the financial institution providing the data, account information (account number, balance, cash/surrender value of assets) and details of income and gains throughout the last tax year.

Every type of financial investment needs to be reported, including cash deposits, savings, dividend payments, bank interest and gains from matured annuities.

The onus is on the final institutions such as banks to provide this data, rather than the account holders themselves. It will be a legal requirement for institutions to give information about all their clients.

This deluge of information will essentially allow HMRC to get a clear idea of the income of every reported individual or organisation across the world, thus allowing them to identify any areas where tax has been underpaid.

Of course, all this information will need to be manually processed by investigators. At a time where HMRC are cutting staff in order to fit with falling budgets, this is a highly daunting task that may take significantly longer than anticipated, particularly in the beginning when the processes are still being fully adopted.

Tax authorities can potentially look back on the past twenty years of income vs tax paid, which again ups their workload dramatically. Still, the amount of financial gain that may occur due to the discovering of underpaid tax by high-value accounts could certainly make it worth the initial headache.

CRS News & Timeline

This new idea for a global model of automatic information exchange was endorsed by G20 leaders in 2014. To date, over 100 countries have given their public support to CRS, many of whom have also chosen to become early-adopters of the processes.

New procedures and guidelines started to be rolled out in January 2016. CRS is set to be fully integrated into early-adopter jurisdictions by the end of 2017.

The list below shows a timeline of CRS implementation from January 2017 right through until the anticipated date of the final procedure completion for early-adopter jurisdictions.

  • 1st January 2016 – New recording procedures in place for new accounts created in early-adopter jurisdictions
  • May – September 2016 – HMRC to receive information from Crown Dependencies and Overseas Territories
  • 31st December 2016 – Procedures in place to identify high-value pre-existing individual accounts in early-adopter jurisdictions
  • 1st January 2017 – CRS processes to start in late-adopter jurisdictions
  • March 2017 – First reporting of financial institutions in early-adopter jurisdictions
  • September 2017 – First exchange of 2016 data between competent authorities
  • 31st December 2017 – Identification procedures for low-value pre-existing individual accounts to be completed in early-adopter jurisdictions

CRS and COP9 Criminal Fraud Investigations

Code of Practice 9 (COP9) is HMRC’s most serious form of a civil tax investigation. It allows individuals or companies who are suspected of tax evasion or fraud to declare all tax irregularities to HMRC. In return for the information, HMRC offers significantly lower penalties than if they were undeclared and later discovered by HMRC.

CRS and COP9 seem to go hand-in-hand with each other to help identify tax fraud. Both CRS and COP9 are concerned with identifying existing tax irregularities, but CRS aims to also help spot the potential for future breaches by requiring yearly income disclosures.

The depth of the CRS has led many to wonder if voluntary disclosures of information (such as those given under COP9) will still provide lower penalties once the standard has been fully released. The Liechtenstein Disclosure Facility for declaring offshore income was retired at the end of 2015 meaning that there are no longer any disclosure facilities that completely protect against fraud prosecution.

If COP9 is applied for and granted then is currently does provide this immunity, yet there is no indication yet that CRS will offer COP9 as a possibility for those under investigation.

Tax authorities will be armed with so much information from all over the world that may decide to no longer offer incentives for people to come forward.

It is recommended that anyone with overseas assets should consult an accountancy firm to ensure that they are compliant with the new CRS regulations. If disclosure of assets is required, early disclosure could be key to avoid higher monetary penalties or perhaps even criminal prosecution.

The Accountancy Solutions specialise in HMRC Investigations. If you need any advice please call our office now on 01216297768 or 02070784001.