News In Focus
Solicitors caught in HMRC information trawl
Solicitors who pay interest on client moneys held are among those who mayhave to comply with new HM Revenue and Customs rules within the next few weeks, a senior tax risk specialist has pointed out.
Rob Kernohan, senior manager with Ernst & Young’s tax risk management practice in Edinburgh, was highlighting the effect of the EU Savings Directive, introduced last July, which requires the reporting of details of savings income (broadly speaking interest) paid by banks and others in business to individuals resident in prescribed states and territories other than that in which the payer is resident.
Those caught by the rules include solicitors paying interest to relevant non-resident individual clients. The first returns by UK businesses within the terms of the directive are due to be made to HMRC by 30 June 2006. Relevant payers should have notified HMRC if they have made relevant payments in the period 1 July 2005-5 April 2006 by 19 April 2006.
UK resident individuals who have savings income arising in relevant territories abroad will find, in the majority of cases, that details are forwarded to HMRC via the paying agent and the foreign tax authority.
“The directive has the stated intent of countering the tax evasion that is believed to be prevalent where individuals have assets generating income outside their country of residence”, said Mr Kernohan. “But as usual the burden created by the mechanics of gathering this type of information is laid on the back of businesses trying to make a living without being unpaid tax collectors or information gatherers for the state.”
As part of the same drive HMRC has been using its powers under section 20(8A) of the Taxes Management Act 1970 to issue notices to financial institutions requiring details of classes of customers not individually known to HMRC who there is reason to believe may have failed to comply with the Taxes Acts, leading to a failure to collect tax due.
It is now known that a major high street bank unsuccessfully appealed to a special commissioner against such a notice late last year. Similar institutions are now the subject of further notices.
An article by Mr Kernohan on the effect of the Savings Directive will be published in the June issue of the Journal.