HMRC tracks 277 tax haven suspects to help reduce UK tax bills

HMRC is reportedly tracking 277 UK businesses it suspects of using tax havens in a bid to artificially reduce tax bills in the UK, according to multinational law firm Pinsent Masons.

The firm says that HMRC was concerned that some businesses are still avoiding tax in the UK by recording income in countries with zero or near-zero corporation tax. Countries traditionally seen as tax havens include the British Virgin Islands, Cayman Islands and Bermuda.

HMRC has reportedly received data on 277 businesses from tax authorities in 12 tax havens over the past year as part of its ‘no or only nominal tax jurisdiction project’, though the data will likely relate to a number of earlier years.

Under this initiative, tax authorities in tax havens must provide information on the identities, activities and ownership of multinational businesses reporting revenue in their countries to HMRC and other tax authorities within the programme. This information can then be used by HMRC to open investigations and levy penalties where it believes UK tax has been “unlawfully avoided or evaded”.

In 2018, an international agreement was reached on the application of the ‘substantial activity’ factor to tax havens. Substantial activities such as having offices and senior employees in the country indicate a presence there that is “less likely to be purely driven by tax”. By January 2022, all 12 havens had introduced a ‘substantial activities’ requirement into their legislation.

Jake Landman, partner at Pinsent Masons, said that HMRC is particularly monitoring ‘high risk’ UK businesses in tax havens. This includes those set up only to hold intellectual property, without having any significant operations in the tax haven. 

Landman said: “HMRC is pursuing businesses it suspects of using tax havens to pay less tax in the UK. This new data-sharing project means they can identify them much more easily.

“HMRC won’t allow businesses connected to the UK to simply channel funds to Jersey or the Caymans if they don’t have genuine operations there. HMRC has a real focus on worldwide profit-shifting and it will be looking for extra tax and penalties from businesses that use tax havens artificially.”

He added: “HMRC has received a total of 429 records, relating to 277 UK taxpayers, which may suggest that some taxpayers are engaged in more than one tax haven. This may heighten HMRC’s assessment of the taxpayer’s risk profile.”