Offshore tax evasion: HMRC close the net!

HMRC are introducing a new legal ‘requirement to correct’ undeclared UK tax liabilities on offshore matters or transfers by 30 September 2018. Ignore this and you could be potentially liable to penalties of up to 200% of the undeclared tax – double the normal limit. What’s more, the minimum penalty rate will be 100% of the undeclared tax and ‘offenders’ could be named and shamed on HMRC’s ‘naughty’ list. For severe cases, there’ll be an asset based penalty of up to 10% of the value of overseas assets.

There’s been a targeted campaign, over the years, to make sure people are declaring their offshore liabilities, including tougher penalties for tax advisers who promote offshore schemes and a requirement for financial advisers to send a special letter (which can be found here) to their clients warning them that they could owe tax if they have any money or assets abroad. There’s also a consultation under way to double the time limits that HMRC have to assess tax where it relates to offshore matters.

Over 100 countries are now sharing tax information with each other via something called Automatic Exchange of Information. HMRC doesn’t need you to declare your overseas bank account any more – they’ll get this information direct from the overseas tax authorities and then check it against your tax information. If it doesn’t add up you can bet HMRC will be writing to ask you why!

In my experience, most people are not deliberately evading UK tax, they simply overlooked or didn’t know they had to declare their offshore income and gains to the UK tax authorities. So what should you do? The answer is you should review your overseas assets and check you’ve declared all your offshore income and gains to HMRC, or be confident otherwise that there is nothing to declare. Somebody who owns a holiday home in Spain, for example, isn’t suddenly going to be faced with higher penalties for not declaring that they didn’t receive any rental income from it: but if they sell that holiday home then they must tell HMRC (and in all likelihood the Spanish tax authorities too)!

If you’ve checked your affairs and you’re still not sure whether you should have paid UK tax then it’s better to tell HMRC about them now, rather than wait for them to contact you. That way the tough new penalty regime won’t apply (although penalties may still be due under the current regime). Similarly, the tougher new penalties won’t apply if you seek an impartial opinion from a qualified professional, and you take their advice.

If you believe you do have something to declare to HMRC then don’t wait. Act on it now by either getting in contact with us, or getting in contact with HMRC directly. You can call me on 01263 712017 or call HMRC’s digital disclosure service on 0300 322 7012.

Requirement to correct - UPDATE - 1 August 2018

The requirement to correct deadline of 30 September 2018 is looming and we are now seeing HMRC issue letters to taxpayers – either specifically or as a bulk mailing. As we have seen with previous bulk mailings, the letters are, in many cases, aggressive in tone and you shouldn't automatically assume that you are going to be caught by the 200% penalties.

However, as I’ve said before, it is vital that you check your affairs to make sure that any UK tax you should have paid, has been paid.

If not then act now, as there is not much time left to make sure that your offshore income has been declared correctly. It seems that HMRC have realised this and have allowed slightly longer to make a disclosure to them as long as you have notified them of your intention to disclose by the 30 September 2018 deadline. This can be done either via HMRC’s digital disclosure service or their contractual disclosure facility or by informing HMRC during the course of an open enquiry.

If you have any questions then you can call me on 01263 712017 or call HMRC’s digital disclosure service on 0300 322 7012.

Alex Coghill