Out-Law / Your Daily Need-To-Know

Out-Law News 2 min. read

Banking tax compliance report hints at more HMRC investigations, says expert


A small number of UK banks "continue to push the boundaries of acceptable tax planning", according to HM Revenue and Customs (HMRC), raising the prospect of formal investigations in the near future.

The tax authority used its annual report on banks' compliance with the code of practice on taxation for banks to set out its concerns about some banks' governance and tax planning behaviours, as well as their relationship with HMRC.

UK banks have moved away from the use of mass-marketed tax avoidance schemes, according to the report. Banks made no new notifications to HMRC about the use of such schemes under the Disclosure of Tax Avoidance Schemes (DOTAS) programme during the review period, it said. However, tax expert Jason Collins of Pinsent Masons, the law firm behind Out-Law.com, said that HMRC was continuing to focus on bespoke tax planning by banks, done either on their own behalf or on behalf of their customers.

"This is the calm before the storm," he said. "HMRC is gearing up to investigate."

"Our expectation is that cases will come to the fore sooner rather than later. If HMRC suspects any bank of not playing by the rules, or not being fully transparent, it has made it clear that it intends to name and shame," he said.

"Banks have come a long way in removing themselves from the mass-marketing of tax avoidance schemes. The report notes that no bank has notified any new schemes under the DOTAS programme. Many banks will think they are fully compliant with the code – but there are some banks which HMRC clearly has in their sights," he said.

Collins noted that HMRC had been advertising for independent professionals to carry out reviews of any of its decisions that a bank had breached the code. HMRC must commission a report from an independent reviewer before it can take a decision on whether to name a bank for code breaches in future annual reports.

The code of practice on taxation for banks was introduced in 2009, and applies to banks and building societies. It encourages banks operating in the UK to adopt best practice in relation to their own UK tax affairs, and not to promote or knowingly facilitate UK tax avoidance by others. HMRC has been required to publish an annual report on the operation of the code since 2015. The report sets out which banks have adopted the code, and which banks have not.

Over the review period, which covered the year to 31 March 2017, 309 banks and building societies were signed up to the code, according to the report. A further five institutions adopted the code over the course of that year, while eight dropped out because they were no longer a bank or ceased trading. Most banks' tax liabilities increased over the review period due to the introduction of the bank surcharge on 1 January 2016 and the further restriction on the use of carried forward bank losses as of 1 April 2016.

Code signatories paid a total of £4.8 billion in corporation tax over the review period, compared with £3.2bn the previous year. Total bank surcharge liability was £1.1bn.

As of 30 September 2017, banks, as well as other businesses, are subject to the new criminal offences of failure to prevent tax evasion. These effectively make the bank vicariously liable for the criminal acts of employees or other persons 'associated' with it which lead to the facilitation of tax evasion, even if senior management was not involved or aware of what was going on.

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.