22 August 2018
Stories of people holding their wealth offshore to avoid paying UK taxes often makes big news. We have all heard of the ‘Panama Papers’ in 2015 and the follow up ‘Paradise Papers’ in 2017 which purported to expose a large number of individuals and companies who were allegedly hiding assets in ‘tax havens’ in order to protect themselves from UK tax liabilities.
These sorts of arrangements were often possible due to the secret nature of the specified ‘tax haven’ and their ability to withhold information about taxpayer’s affairs from their customer’s resident taxation authority.
However, from January 2017, new technology and an almost global passion to expose any form of tax evasion has led to HMRC obtaining access to banking information held by over 90 countries (backdated to January 2016). From this newly discovered ‘pot of gold’, they are now able to unearth taxpayers who hold accounts and assets in these jurisdictions, and assess whether any income has arisen which may not have previously been declared to the UK tax authorities.
HMRC launched their Requirement to Correct (RTC) initiative over 18 months ago, which invites all UK resident taxpayers to come forward to confess to their offshore assets, income and gains, and to pay any unpaid tax before the deadline of 30 September 2018 for any non-compliance which occurred prior to 6 April 2017. Unlike previous attempts to nudge people into becoming fully compliant taxpayers, this initiative offers no soft landing other than a threat that not to come forward now means a much worse alternative.
From 1 October 2018, HMRC will be entitled to charge extensive penalties for anyone whom they discover to have undeclared offshore assets, income or gains.
The standard penalty will be 200% of the tax involved. Factors such as cooperating with HMRC or disclosing voluntarily will be taken into account, but the standard penalty cannot be reduced to less than 100% of the tax involved. An additional penalty of 10% of the value of assets can be imposed, on top of the standard penalty, if the tax involved exceeds £25,000 in any year. Cases where assets have been moved offshore to avoid reporting are subject to further enhanced penalties, and serious cases may see taxpayers ‘named and shamed’.
The reduction a taxpayer will receive will depend on how much assistance they give HMRC.
- telling, HMRC give up to 30% of the maximum reduction
- helping, HMRC give up to 40% of the maximum reduction
- giving access to records, HMRC give up to 30% of the maximum reduction
To receive the full reduction, taxpayers must also provide additional information to HMRC about:
- anyone who encouraged, assisted or facilitated you to carry out offshore tax evasion or non-compliance
- assets held in any country outside the UK and any other persons or entities engaged to hold those assets on behalf of the individual concerned
HMRC’s activity in this field has dramatically increased. Over the past few weeks, we have seen that HMRC have begun to write to taxpayers (and in certain cases to make phone calls directly to their agents) whom they believe hold offshore assets in an effort to reinforce the message and to encourage compliance before it is ‘too late’.
We are aware that in some cases, HMRC have contacted taxpayers to encourage compliance when no offshore assets were in fact held. This has led to a predictable lack of confidence on the part of professional advisers, that HMRC are processing the perceived intelligence that they receive correctly.
If you have any doubt, you should review your UK tax affairs so that you can make any necessary correction by 30 September 2018.
If you think any of the above may be applicable to you, please do not hesitate to contact your local UHY specialist to discuss your options.
Alternatively, fill out our contact form here.