Offshore Tax Errors

The “Requirement to Correct” (RTC) legislation was introduced in 2017 to require those with undeclared offshore tax liabilities to disclose these to HMRC by 30 September 2018.

Since 1 October 2018, the “Failure to Correct” (FTC) regime began. 

Why is the above relevant?

At the outbreak of Covid-19, HMRC moved much of their resources on to the helplines to assist with the financial support packages introduced by the government.

Now that these packages have embedded in, HMRC is starting to spend more time on raising enquiries into taxpayers’ affairs. 

One key area for enquiries is with respect to taxpayers with offshore income and gains.

The Common Reporting Standards (CRS) enables tax authorities across the world to automatically exchange information on taxpayers based on where they are regarded as tax resident. The UK started to report under the CRS in May 2017. 

As a result of this, each year HMRC will receive reports from participating jurisdictions detailing:

• The name, address and taxpayer identification number and date and place of birth of each reportable person;
• Account numbers
• Name and identifying number of the reporting financial institution
• Account balance or value as of the end of the reporting period.
• Capital gains depending on the type of the account

It now has a wealth of information to approach taxpayers regarding their affairs and has started sending out letters to taxpayers based on the information from these reports.

This is key area for HMRC as the tax take from these types of enquiries can be much higher than a UK based enquiry with a much more punitive penalty regime on top.

Penalties can range from 100% to 200% dependent on the jurisdiction involved and, for historic liabilities not corrected under RTC, they can reach up to 300% where there has been a deliberate effort to avoid tax.  

In addition to the above tax geared penalties, further penalties could apply where the tax at stake exceeds £25,000, or HMRC believes it can show that assets and funds were moved with the intention to avoid reporting.

Naming and shaming of offenders is also a possibility for more serious cases. 

Finally, HMRC has a much longer time period to enquire into clients with offshore affairs, meaning it can look back over a 12-year period (as opposed to a six-year look back for domestic errors). Again, this gives HMRC more scope to maximise the funds it will receive back. 

How can Bishop Fleming help?

It is possible to reduce the level of penalty chargeable by making a voluntary disclosure to HMRC.

We are able to assist in making the appropriate disclosure to HMRC on your behalf and calculating the underpaid tax due.   

For trustees, it is important to remember that trustees are regarded as a continuous body by HMRC, meaning that there is a potential for new trustees to be penalised for any failures of their predecessors. We can help any potential new trustee to carry out appropriate tax due diligence prior to taking over as a trustee, so they are fully aware of their level of risk. 

For more information regarding this, please contact your Bishop Fleming advisor or a member of the international team.