The reporting of income or assets in UK tax returns relating to offshore matters will be under greater scrutiny by HMRC with the introduction of a harsher penalty regime. HMRC announced their plans for the under-reporting of UK tax assets outside the UK in December 2016, along with a final opportunity to make sure everything is in order, with the “Requirement to Correct” initiative. With plans for the most serious cases of unsuccessful tax avoidance or evasion to be subject to a tax penalty increase of 300%, plus a 10% penalty on the related assets, as well as the possibility of being named publicly, this signals the end of HMRC’s previous, more friendly disclosure initiatives and an indication that this will be a “one last chance” enterprise. .
If your offshore affairs are non-compliant, the good news is that you have until the 30 September 2018 to fix it. The bad news is, it will require your immediate attention.
The “Requirement to Correct” initiative stems from the new information HMRC will be receiving under the multilateral Common Reporting Standard. With this in its arsenal, HMRC will now have the information to identify non-compliance overseas in a way it hasn’t previously. When this information has been reviewed, the spotlight will be on both offshore matters and transfers, with checks on income tax, capital gains tax (excluding non-resident capital gains tax for offshore companies), and inheritance tax. Examples of non-compliance that HMRC will be keeping an eye out for include errors in return, failure to notify HMRC that a return should be issued and failure to complete a return. This could affect bona fide clients who have been wrongly advised on their offshore arrangements, or whose arrangements are out of date due to subsequent legislation.
Enforced from the 30th of September 2018, penalties will be increased, with the basic penalty being 200% of the tax which is due. For more severe cases, this could rise to as much as 300%. In addition to this, HMRC have also warned that they will be willing to name and shame the worst offenders, especially if there is evidence to show that assets were deliberately moved with the intention of hiding them.
While there is a possibility that penalties may be reduced through co-operation with HMRC, penalties given after the deadline will relate less strongly to motives than previously. From the perspective of HMRC, once a failure has been identified despite the “Requirement to Correct” initiative, as well as earlier disclosure campaigns, the damage may have already been done. There is a “reasonable excuse” defence, but this will be of narrow application. The 30th of December 2018 is the deadline by which any persons with UK tax liabilities will be expected to have addressed tax reporting of offshore assets or transfers for the period up to and including April 5th 2017.
It is therefore important for UK residents with offshore arrangements to take proper, independent professional tax advice as soon as possible. The older the offshore arrangements, the greater the need to undertake a tax review now with an appropriate advisor. Jordans can assist by recommending appropriate independent professional tax advisers to review your offshore arrangements with you.