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BTLForum17: NatWest urges brokers to adopt tax dodging detection measures

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  • 22/03/2017
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Mortgage brokers must be able to spot clients’ attempts to evade and avoid their tax responsibilities to prevent their businesses becoming embroiled in HMRC investigations, NatWest warned.

Speaking to an audience of mortgage brokers at The Buy to Let Market Forum in Bolton, Alan Ferguson, senior corporate account manager, NatWest, said the largest proportion of tax evasion comes from Small and Medium-sized Enterprises (SMEs), firms mortgage brokers are likely to come across.

Each year, HMRC calculates the value of tax it expected to collect which failed to find its way into the government’s coffers. Last year, 50% of all unpaid tax came from SMEs to the value of £18.3bn. This compares to unpaid taxes of £9.5bn by large corporations, £4.8bn by criminals and £3.4bn by individuals.

Under a new law, currently making its way through parliament, anyone associated with a company or partnership who helps a person evade tax can be prosecuted.

Ferguson said brokers needed to understand the differences between tax planning, tax avoidance and tax evasion.
“Tax planning is 100% legal. It is perfectly acceptable to plan to use income and savings allowances in the most efficient way,” he said. “Tax avoidance is not actually illegal. A person avoiding tax is not breaking rules to the letter of the law, but goes against the spirit of the law.

“Tax evasion, where a person fails to declare their full income and the properties they own, is a criminal activity,” said Ferguson.

The recent prosecution of a property developer and landlord for evading the payment of £281,000 in taxes, by not declaring rental income or his directorship, resulted in a two-year suspended jail sentence and a fine of £200,000 on top of the tax bill. However, tax avoidance, which is technically within the law, is now being tackled by the government with the same vigour. In his first Budget, Chancellor Philip Hammond said those who enabled others to avoid tax would face personal penalties.

Ferguson said NatWest had a clear view on tax avoidance. “If we suspect tax avoidance is the individual’s objective we will say to the intermediary, please don’t consider putting that buy-to-let application with us.”
NatWest is not the only lender taking a firm stance on property investors trying to avoid paying their fair share of tax. Many banks have already tightened policies on lending to company structures which have been set up for the sole means of tax avoidance.

Ferguson added: “Brokers must have a system in place within their firm which allows them to report their suspicions, or if they are dealing with NatWest they can refer the case to our BDMs for guidance.”

Tips for spotting tax evasion and tax avoidance.

Evasion red flags

  • Customer’s income does not match their tax return without reasonable justification
  • Customer’s income does not seem to be reduced by tax
  • Customer refuses to explain their overly complex and unusual offshore structure, but say its for tax reasons.

Avoidance red flags

  • Customer’s tax scheme sounds too good to be true
  • Customer receives pay in the form of loans
  • Customer’s income seems to go round in circles
  • Customer has a HMRC Scheme Reference Number (SRN) – don’t get hoodwinked, this accounts for nothing.

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