EU Directive 2018/822 (better known as DAC6) requires certain transactions with a connection to two or more EU member states to be disclosed to a national tax authority, i.e. HM Revenue & Customs (HMRC).
This is yet another source of information being put in the hands of HMRC – so what, you might think?
What can go wrong?
You would think that reporting facts is a straight forward exercise. If only.
Imagine Scenario 1 – from the outset, the information being gathered and then reported can be incomplete, misleading or simply wrong.
Imagine Scenario 2 – in the hands of HMRC, that information can be misunderstood or found to conflict with other information and/or documentation that they may already hold.
How does DAC6 affect a UK taxpayer?
Both scenarios happen regularly. As a consequence, the UK taxpayer gets a letter from HMRC asking all sorts of questions but often from the perspective that the taxpayer is already guilty – exactly of what though, may not be clear.
Frustratingly, HMRC are not always in a position to test the information that they receive before they contact the taxpayer. HMRC work on the basis that whatever they are told is right because it has come from an overseas intermediary (lawyers, trustees, bankers etc.), ignoring the existence of Scenario 1.
The powers available to HMRC are wide ranging as they have the role of policing the UK tax system. There are some taxpayers that do not always pay their fair share of tax.
Whatever happened to being innocent before being proved guilty?
Whether HMRC’s letter has been triggered by DAC6 or the Common Reporting Standard is irrelevant. The taxpayer now has to prove their innocence and at their own expense.
HMRC has the power to go back 20 years where fraud is suspected and Code of Practice 9 has been issued. But HMRC often uses Code of Practice 8 as a fishing exercise in these situations and not many taxpayers keep records going back so far – some not at all!
Before starting an investigation, HMRC might issue a taxpayer with a notice for information under Schedule 36 FA 2008.
What can taxpayers do?
Seek advice from a specialist – there may be a way of nipping matters in the bud before too much expense has been incurred let alone stress.
In previous blogs we have spoken about “nudge letters “. You might find what we say interesting.
CRS is “old news”. DAC6 is now here – the first reporting deadline is 1 July 2020 and the UK is caught as we have not left the EU yet.. HMRC will be making challenges when everything has been machined through Connect.