HMRC’s offshore tax campaign – where we are now

 

Tax – the press fever continues

The November 2017 Paradise Papers release of 13.4 million documents, obtained from offshore law firm Appleby and corporate services provider Estera, allegedly contained details of the way individuals, companies and investment funds utilise offshore jurisdictions including Bermuda and the Cayman Islands to structure their businesses.

The Paradise Papers have generated widespread public interest and detailed press coverage, thus fuelling the onward march of HMRC’s anti-avoidance campaign.

 

HMRC’s strategy to date

The government published a strategy to tackle offshore tax evasion in 2013. The strategy defines offshore tax evasion as “using another jurisdiction’s systems with the objective of evading UK tax.”

To implement this strategy, the government introduced a number of important measures:

  • Early adoption of the Common Reporting Standard, a ground-breaking multinational tax transparency agreement under which over 100 jurisdictions, including the UK, will automatically exchange financial account information. Under the Common Reporting Standard, HMRC will receive information about overseas accounts, insurance products and other investments, including those held through overseas structures such as companies and trusts. This includes details of the account holder or owner, including name, address, date of birth, balance of the account, and payments into the account;
  • Increased civil sanctions for offshore evaders (FA 2015 and 2016), including a new asset based penalty of up to 10% of the value of the underlying asset;
  • A new criminal offence for offshore evasion (FA 2016) – this offence removed the need to prove intent for serious cases of failure to declare offshore income;
  • New civil and criminal sanctions for ‘enablers’ of offshore evasion (Finance Act 2016 and Criminal Finances Act 2017) – they hold enablers, including corporates and partnerships, to account concerning evasion facilitation; and
  • A new legal Requirement to Correct (FA (No. 2) 2017) any past failure, as at 5 April 2017, to pay UK tax on offshore interests must be disclosed, with new tougher sanctions from 1 October 2018 for those who fail to do so.

 

Latest developments

Not content with the aforementioned, HM Revenue and Customs (HMRC) will now be able to look at 12 years’ worth of back taxes in cases involving an offshore element from April 2019, if the UK government goes ahead with a proposal announced in the last Budget.22 Feb 2018

HMRC has opened a consultation on plans to change the time limits from four years, or six years where a suspected underpayment has been brought about due to carelessness. The time limit will remain 20 years where the taxpayer has acted deliberately or dishonestly.

The consultation sets out the government’s proposed changes in relation to income tax, capital gains tax and inheritance tax, along with associated safeguards. It also proposes applying the new time limits in respect of corporation tax, “given that many offshore structures involve corporate entities”.

It has also proposed a “proportionate and targeted” application of the new time limits where HMRC has received information about offshore income and assets automatically, under the various international automatic information exchange agreements.

The government intends to apply the new time limits with effect from 1 April 2019 in relation to inheritance tax and corporation tax, and from 6 April 2019 in relation to income tax and capital gains tax. The limits will apply to any year that is still in date for assessment when the new legislation comes into effect, but will not apply to any tax year for which the time limit has already expired.

The consultation closes on 14 May 2018.

 

Conclusion

HMRC is continuing with its relentless drive to increase powers and beef up direct action against taxpayers with undisclosed offshore assets.  There is no sign of any slow down and indeed in our view, this trend is likely to increase in the near to medium term future.

 

Levy and Levy – the tax resolution specialists