News
Tax amnesty - HNWIs - 2009-11-08
Often we read in newspapers, see on TV or hear on the radio of sport stars achieving sporting greatness. Being a sports fanatic, I have a tendency not just to look at the entertainment factor but at the money behind that particular sport, and often the glamorous lifestyle. While they are entertainers, it is fair to say that sport stars are business people.
Most sport stars, which I will now refer to as High Net Worth Individuals or HINWs (i.e. sports stars, entrepreneurs, business owners, & celebrities) are employees of companies and normally have tax and National Insurance deducted from the remuneration paid to them. However, the position is not that straightforward as many HNWIs are under the illusion that as long as they are paying the highest rate of tax on their earnings (i.e. 40%, soon to be 50%) they should not complete a UK Tax Return.
HM Revenue & Customs' (HMRC) guidelines state that if you are earning more than £100,000pa you should complete a UK Tax Return. Even if HMRC do not send you one to complete, the onus is still on the taxpayer to request a UK Tax Return and submit it to HMRC by the appropriate deadline (normally 31 January following the end of the tax year). Therefore, earnings generated during the year ended 5 April 2009 should be reported on a Tax Return for that year and submitted by 31 January 2010.
In most cases the HNWI may well have investments and other business interests apart from his/her main activities and the income generated on these may also have to be reported to HMRC. This normally makes them the target of one of HMRC's specialist units who will investigate their affairs. In my experience this often generates additional tax liabilities, together with interest payable and also a tax penalty which could amount to as much as 100% of the tax owed.
This brings me on to the New Disclosure Opportunity (NDO), which was announced on 1 September. This is the second tax amnesty that has been offered to the public by HMRC in the last two years and is open to the entertainer, business person or indeed any individual who may have undeclared income or capital gains. Assuming that the individuals want to come clean, they have until 30 November 2009 to notify their intention to HMRC that they will submit a Disclosure Report, promising that the Report will be submitted by no later than 31 January 2010 in paper form or 12 March 2010 online.
Beware, HMRC now has the right to demand information from over 300 banks that provide offshore banking facilities and compare this information with Tax Returns of, amongst others, UK based HNWIs. If the two do not tie up, and there is no intention to submit a Disclosure Report, HMRC will pursue each HNWI identified.
The benefit of coming clean under the NDO is that it is possible to agree the tax position in connection with your undisclosed income and capital gains, and limit your penalty to no more than 10% of the outstanding tax. However, there are a number of conditions that must be satisfied, including whether a previous report could have been made to HMRC under the first tax amnesty offered in 2007.
HMRC regards you the HNWI as a business person and will expect you to run your affairs in a proper and efficient manner. Ignorance is not an excuse and therefore managers, agents and advisers, together with you, the HMWI, should ensure that the necessary steps are taken to avoid this problem.
Joseph Brown is a senior tax consultant with Littlejohn's private client team. His clients include city executives, sportsmen and other high new worth individual. Contact Joseph on 020 7516 2252 or jbrown@littlejohnllp.com.
This article was first published in Waterfront magazine, November 2009.
