HMRC statistics show that approximately one in ten people in the UK have an offshore financial interest. The taxation of income and gains arising from these interests can be complex.
HMRC now has access to unprecedented levels of overseas financial data, which most notably arises from the Common Reporting Standard (CRS) overseen by the OECD. This is a global standard for the automatic exchange of financial account information. Over 100 countries have adopted CRS and HMRC received details of 5.7 million accounts held by UK residents in 2018.
HMRC is now using this data to challenge taxpayers who it suspects may have under-declared or evaded tax altogether on offshore interests. This is a focus area for HMRC in identifying cases for routine enquiry and more serious civil and criminal investigations.
One method HMRC has used for targeting these taxpayers is to issue so-called ‘nudge letters’ to individuals with offshore assets, income or gains, most recently in February 2020. The letters explain that HMRC has information relating to the taxpayer’s interests in overseas property or sources of overseas income and gains which may be taxable in the UK. HMRC suggests that this is an opportunity for the taxpayer to check their tax affairs are up to date and fully compliant. They generally stipulate a 30-day response deadline and can request a ‘certificate of tax position’ form to be returned. The letters suggest that the taxpayer should seek professional advice if unsure of their position.
With the severe financial impact of COVID-19 affecting many individuals and businesses, HMRC has acknowledged that this is a difficult time for many taxpayers and will provide support, including time-to-pay arrangements. However, HMRC confirmed in April 2020 that the 30-day deadline referred to in these nudge letters will not be extended. It is therefore important to respond, and deal with any issues arising from these nudge letters, as promptly as possible.
Further details are available on the Chartered Institute of Taxation (CIOT)’s website below: https://www.tax.org.uk/policy-technical/technical-news/covid-19-hmrc-letters-taxpayers-offshore-assets-income-or-gains.
Alongside HMRC’s data-driven approach is its ‘No Safe Havens’ offshore strategy, renewed in 2019, as well as punitive penalties for offshore errors in tax returns. Identifying and dealing with offshore non-compliance is crucial for all professionals and individual taxpayers.
Dawn Register and Dominic Hall from our Tax Dispute Resolution Services team comment in greater detail on common issues affecting offshore interests in the March 2020 edition of Tax Adviser magazine.
The article expands on the common pitfalls and misconceptions that we come across in practice, including holiday homes, overseas bank accounts, foreign tax, exchange rates, materiality and the complexities of UK residence and domicile. It is always worth checking and double checking to make sure we have a full picture of a client’s offshore assets.
The reporting of foreign assets is complex. Where mistakes are spotted, the Worldwide Disclosure Facility (WDF) remains open and voluntary disclosure is to be encouraged. A voluntary approach will generally reduce penalties. The Failure To Correct regime, now in force since October 2018, makes mistakes on foreign asset reporting increasingly more expensive (see Finance Act (No. 2) 2017 s 67 and Sch 18). Therefore, advisers and taxpayers are wise to take care in their returns, and when handling enquiries and disclosures.
Our Tax Dispute Resolution Services team is experienced in responding to these nudge letters, dealing with any associated tax issues and can support any individual, business, trustee or executor with further guidance. Get in touch with us if have received a nudge letter and would like some advice.
This article was written by Dominic Hall.