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Enforcement and HMRC powers

09 November 2018

Extension of offshore time limits

What are the offshore time limits?

The Finance Bill extends the time limits within which HMRC may issue discovery assessments to charge tax arising from non-deliberate offshore non-compliance. HMRC has 4 or 6 years from the end of a tax year to issue discovery assessments for cases of reasonable care and carelessness, respectively.


What has changed for offshore time limits?

This applies to most cases involving income tax or capital gains tax subject to the revised time limits for the Requirement to Correct. Similar time limits exist for inheritance tax underpayments. The Finance Bill extends those time limits to 12 years whilst leaving the 20 year time limit for deliberate behaviour unchanged.

It is important to note that this change only relates to offshore non-compliance i.e. offshore matters and offshore transfers. ‘Offshore matters’ occur where: (i) tax is charged on income arising, assets located or activities carried on, wholly or mainly outside the UK; or (ii) income or assets were received in a country outside the UK. ‘Offshore transfers’ occur when the income or proceeds are transferred to a country outside the UK and make the lost tax significantly harder for HMRC to identify.

The new time limits will apply after the Bill receives Royal Assent to:

  • 2013/14 and subsequent tax years where there was careless behaviour;
  • 2015/16 and subsequent tax years where the tax is assessable despite reasonable care being taken.

A safeguard is incorporated which means that HMRC cannot use the 12-year time limit:

  • If it receives information from an overseas tax authority (whether by automatic information exchange or under another agreement) from which HMRC could reasonably be expected to become aware of the tax, and
  • It was reasonable to expect HMRC to issue an assessment before the normal time limit.

Whilst this is a welcome safeguard, taxpayers generally do not know whether HMRC holds offshore information about them. In addition, it is likely that the Courts will need to consider what is ‘reasonable’ in this context. 


Online platforms’ role in ensuring tax compliance by their users

HMRC is concerned that individuals selling goods or services through online platforms may be less likely to comply with their tax obligations. After considering the feedback received from a recent call for evidence, HMRC announced that it will:

  • Improve the help available via to help taxpayers understand what they need to do to meet their tax obligations. This will include using “decision-based guidance” and virtual assistant technologies. The government would like platforms to draw users’ attention to the new guidance when it becomes available.
  • Consider other options like a withholding system for those working in the gig economy.
  • Explore how it can better access data about users of platforms based outside the UK, which are therefore not subject to the UK legislation requiring bulk data to be given to HMRC.
  • Co-sponsor, with Italy, an OECD project to improve international efforts to collectively tackle non-compliance by people in the gig and sharing economies. This may include obtaining data from platforms and sharing that data with other countries’ tax authorities.
  • Explore opportunities for users to share data directly with HMRC, for example through software and apps. This is another steps towards ‘Making Tax Digital’ and towards the aim of “creating an effortless tax experience for customers”.


Extension of the existing security deposit legislation to include corporation tax and CIS deductions

At present, HMRC can require businesses that it considers high risk to pay security deposits upfront on certain taxes that may otherwise be at risk of non-payment. High-risk businesses are those which typically do not comply with their tax obligations or whose directors are associated with multiple business failures.

HMRC can issue notices to make the business and its directors or LLP members jointly and severally liable to provide the security to HMRC for tax debts for PAYE, NIC, VAT and some other indirect taxes.

The Bill includes legislation that will give HMRC the power to obtain a security in respect of both corporation tax and Construction Industry Scheme (CIS) deductions from 6 April 2019. If the business or directors do not provide the security within the prescribed timeframe, they will be committing a criminal offence and be fined.


Tax abuse and insolvency

Directors, as well as other persons involved in a company’s or LLP’s tax avoidance, evasion or phoenixism will become jointly and severally liable for outstanding company tax liabilities where a business enters insolvency or becomes functionally insolvent to avoid or evade tax. The aim is to deter people from making businesses insolvent solely in order to escape paying tax.

The consultation documents state that HMRC will be able to use these powers where there is an established liability that arose though tax avoidance, evasion or pheonixism. HMRC will have to hold evidence of this.

Currently directors/office holders are only liable for a company’s tax debts in very limited circumstances such as a willful default of PAYE. However, the Government intends to define avoidance by reference to GAAR and DOTAS, so the reach of these rules may be extended considerably. HMRC can also make the responsible office holders pay any deliberate behaviour penalties imposed on companies and LLPs.

Additionally, the Chancellor announced in the 2018 Budget that from 6 April 2020, HMRC will be the preferred creditor for taxes collected and held by businesses on behalf of other taxpayers when businesses enter insolvency. This applies to PAYE income tax, employee NICs, VAT and CIS deductions.

The rules will remain unchanged in relation to taxes owed by businesses directly to HMRC, such as corporation tax and employer’s NICs. Here, HMRC continues to rank alongside other creditors.


Amending HMRC's civil information powers

In 2018 Government consulted on proposed changes to its information powers that may remove most of the safeguards for third party information notices. The consultation suggested this may apply to all notices. The exception being where Tribunal approval is needed because informing the taxpayer may prejudice the assessment or collection of tax, or just to ‘financial institution’ notices.

If the changes proceed as proposed, HMRC will not need approval from the Tribunal or the taxpayer to issue most third party notices. The main reason for the proposed changes is HMRC’s desire to reply quickly to overseas tax authorities’ requests for information.  HMRC is also considering increasing the penalties for failing to respond to information notices.

The consultation closed on 2 October 2018. HMRC is currently considering the responses that it received so there is no new legislation in the Bill or other consultations.

Read more on the Finance Bill 2018-19