When we last conducted the trust companies survey, we had experienced an explosion of changes in the private client tax space, together with a significant uptick in enforcement activity and increased reporting requirements.
Against that backdrop, it came as no real surprise that top of the tax agenda were (1) keeping up with tax changes and (2) managing historical tax issues.
In the two years that have passed since that first survey, certainly from a UK perspective, we've seen a significant decrease in the rate of legislative change; a bedding in of reporting requirements and associated systems and controls; and (impacted by the pandemic) enforcement activity ground to a halt.
It might be expected, then, that concerns about day-to-day and new business compliance would have decreased; perhaps also concerns about keeping up to date with legislative change.
Certainly, this is borne out, to an extent, in the results of the latest survey.
What do you find most challenging about tax compliance?
Dropping down to 6% (from 16%) is concern about new structures, and to 11% (from 15%) is concern about managing day to day compliance.
The big increase is management of historical and potentially contentious issues, leaping up to 37%.
At first blush, that might seem odd, given the sharp drop off in investigative work referred to above (at least, in relation to non-CJRS (Coronavirus Job Retention Scheme) related matters). However, there are most likely at least three factors in play.
- First, for anyone handling an extant enquiry or investigation, the difficulties encountered in progressing them in the face of relative inactivity from the tax authorities could often become a source of acute frustration and concern (all the more so when having to explain that delay to clients).
- Second, although traditional investigative activities paused, HMRC continued attempts to surface potential compliance issues through the issue of targeted "nudge" letters (most significantly in relation to cryptoassets and res non-doms).
- Third, following the "Covid hiatus", investigators are now back to work. As well as dealing with issues that would have been familiar to many before lockdown, there are a plethora of new issues emerging from the rule changes mentioned in our previous trust survey report – failure of trust protections for long term residents (owing to tainting); onward gifts falling foul of the anti-recycling rules (whether due to error or ignorance). In addition (though perhaps looking slightly further into the future) the unwary risk unexpected issues arising in connection with the temporary non-residence anti-avoidance rules for those who return to the UK after a period of pandemic related non-residence.
An overarching theme remains HMRC's continued and aggressive pursuit of challenges against claims of non-dom status.
In this arena, a perennial problem has been dealing with onerous and speculative requests for documents and information. In a spate of recent cases, the UK Courts and Tribunals have grappled with a number of cases in which parties have tried in various ways to rein in expansive information requests. Although the Courts have been robust in curtailing clear fishing expeditions, it is still the case that HMRC will be given the benefit of the doubt whether they have reasonable grounds for investigation.
- In this regard, the level of taxpayer cooperation can be key to determining whether a request for information will be upheld (as well as in determining the level of penalty where there proves to have been culpable non-compliance): early cooperation, and the provision of genuinely relevant documents, can be crucial in demonstrating that further information requests are not reasonably required. It is, therefore, as important as ever to take control of the narrative in, and direction of, investigations as early as possible.
- In cases where non-compliance has occurred, the high profile decision of the UK Supreme Court in HMRC v Tooth offers a measure of comfort. In that case, and contrary to the position that HMRC had taken for a number of years, the Supreme Court found that conduct will only be "deliberate" (attracting the highest levels of penalty, and allowing the longest look back period for assessment) where it involves an intention to mislead.
Looking a little further into the future, the pace and scope of relevant legislative change in the UK looks somewhat unclear. Whilst, since the last trust survey, decisions have been taken against large scale reform of the taxation of trusts, inheritance tax and capital gains tax, the Government made clear at Spring Statement 2022 that it would be looking at plans to reform reliefs and allowances ahead of 2024 in a bid "to make the tax system simpler, fairer and more efficient".
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