March 12, 2018
A new law allows government departments to investigate your financial affairs if they can’t see where your wealth came from. Does this mean HMRC can now go fishing in your tax records when it wants to?
Tax enquiries. There are strict rules that say when HMRC is entitled to start an investigation, or enquiry as they are now referred to. It is allowed to make a relatively small number of random checks into self-assessment tax returns, otherwise it must have a reason to start an enquiry. “Unexplained wealth orders! (UWOs) widen these powers.
Wealth v income. Since 1 February 2018 UWOs can be used to allow government departments, including HMRC, to investigate an individual’s financial affairs it if appears their wealth isn’t backed up by sufficient income to justify it. However, HMRC can’t act on a whim; UWOs will only be issued if:
- Your own assets worth £50,000 or more; and
- HMRC, or other government departments, can prove there are “reasonable grounds” to suspect something is awry.
Only then will the High Court (Court of Sessions in Scotland) issue a UWO. In our view “reasonable grounds” is a rather vague condition and it probably won’t be difficult for HMRC to convince a judge.
Who can be targeted? UWOs can be obtained to look into the financial affairs of individuals, or organisations that hold funds for individuals, like trusts.
Government intentions. While most taxpayers will easily meet the £50,000 condition, the purpose of it being so low isn’t to catch everyone in the net. It’s to give HMRC a crack at very wealthy individuals who are able to hide most of their wealth, but are unlikely to be able to manipulate it below £50,000.
Untested. Only time will tell how HMRC will make use of UWOs, and the willingness of the High Court to assist, but at face value our view is that they don’t offer HMRC any easy way to start a fishing expedition.
If you find yourself at the wrong end of a UWO, it’s serious and you should take advice from an accountant and probably a lawyer to.