Managing Tax Risk – Are you due a health check?

The proliferation of tax reporting requirements and anti-avoidance legislation on the UK statute book is quite staggering. In recent years each new Finance Bill has introduced wave after wave of new rules, resetting the boundaries and raising the compliance threshold for taxpayers – both prospectively and in some cases retrospectively. At the same time the penalties for non-compliance, particularly at the offshore level have been dramatically increased. A look to the future suggests that things are not going to get any easier with the likes of profit fragmentation reporting, mandatory disclosure requirements and DAC6 all in the pipeline.

From a policy perspective this all seems at odds with the narrative portrayed by politicians in the media. With Brexit looming and economic forecasts scrutinised more than ever, the Government is keen to communicate that Britain is ‘open for business’. And it is particularly eager to retain the world leading and highly lucrative asset management industry in London. Given this, one would imagine that a stable and easily understood tax regime would be top of the agenda for those in power. However, whilst the headline rates remain relatively constant, the legislation that determines the manner in which tax is assessed is frequently bolstered by anti-avoidance legislation, either fine-tuning the existing framework or introducing tailor-made rules for a particular set of circumstances or industry.

There is perhaps no better example of this than the disguised investment management fee legislation. Introduced in April 2015 the legislation targets UK asset managers imposing a dry tax charge at up to 47% on management and performance fees held within corporate structures (including those offshore). It also removes the protection afforded to individuals under the non-domicile regime and compliance with transfer pricing guidelines. Within months of being introduced it was amended multiple times significantly expanding the scope. Despite updated draft guidance being released in Oct 2016 this is still yet to be finalised and remains unpublished. Consequently, it is an often over-looked piece of legislation, falling between the traditional roles of the corporate and personal tax advisor.

From a practical perspective, taxpayers seeking to comply with the UK statute are left with an increasingly complex rule book and a significant risk of non-compliance. If uncovered this will at best be a drain on time / resources and at worst lead to a crippling tax bill. With limited resources, taxpayers, and indeed their advisors, need to consider how best to manage that tax risk.

This is where the role of the specialist to quickly identify potential risk areas and appropriate solutions is critical. In many cases the role will be to complement current advisors rather than replace them altogether – adding value where it is most needed. This is the primary driver behind Larkstoke Advisors LLP – a boutique professional services firm focused on providing UK tax advice to asset managers. We are helping UK asset managers better understand their tax risk by providing a Health Check service – the objective of which is to identify tax risks, determine how best to manage these and where appropriate what action can should be taken. For more information about how we can help please get in contact.