A direct consequence of that increased tax transparency is the OECD’s Common Reporting Standard (CRS). The UK government has also been busy signing inter-governmental agreements (IGAs), with the first automatic exchange in relation to the Crown Dependencies and British Overseas Territories having taken place by 30 September 2016. An increasing list of countries will be exchanging information automatically under CRS from 2017.
Requirement to correct
HMRC issued a consultation document in August 2016 proposing a new legal ‘requirement to correct’ (RTC) any underpaid tax arising as a result of ‘offshore interests’.
Hidden sources of income are clearly a driver, but HMRC states ‘people with overseas assets are often those with the most complex tax affairs and this can include tax structures which were compliant when they were set up but are not now’. It goes on to say ‘we are looking for the RTC to address all non-compliance irrespective of the underlying behaviour or motivation’.
HMRC is looking for taxpayers to review their offshore affairs and, if appropriate, correct that position through a disclosure. Failing to review their affairs or to correct known inaccuracies will place individuals in a failure to correct (FTC) position, giving rise to additional consequences.
The key points of this proposal are:
- it focuses on any taxpayer with a UK tax liability arising from offshore interests, not just UK residents, ensuring that the RTC captures non-resident trustees;
- the disclosure period will be from 6 April 2017 to 30 September 2018;
- HMRC intends to measure the assessment period time limits during the disclosure period from 6 April 2017 and to temporarily extend the assessment period for tax and penalties by two and a half years, so that tax assessable at 6 April 2017 will remain assessable until at least 5 April 2021; and
- new stringent FTC penalties (potentially up to 200 per cent of the tax) and ‘naming and shaming’ will apply.
Worldwide Disclosure Facility
HMRC brought all previous disclosure facilities to a premature end on 31 December 2015, with the suggestion of a new (less favourable) facility to replace them in the run up to the IGA/CRS information exchanges.
That new facility arrived on 5 September 2016 with the announcement of the Worldwide Disclosure Facility (WDF). However, political change, the continued public perception that disclosure facilities are just another way the wealthy get away with not paying their full share of tax and the automatic exchange of information under CRS mean this facility is different. None of the benefits of previous facilities are included and it is effectively just a digital facility to disclose tax irregularities. Other disclosure options are still available and should be considered depending on the circumstances of the case.
The final string to the bow in HMRC’s focus on unpaid offshore tax liabilities is a requirement for ‘specified financial institutions’ (such as banks or wealth managers) or ‘specified relevant persons’ (such as tax advisers, solicitors or financial advisers) to write to individual clients to tell them about the impending automatic exchange of information due to take place under CRS.
Clients must be notified by 31 August 2017 and failure to do so carries a potential £3,000 penalty. HMRC has prepared a notice for this purpose which advises those individuals with undeclared tax liabilities to come forward.
It is imperative that individuals and entities with offshore assets, whether UK resident or not, work with their professional advisers to review their UK tax position without delay.
Under RTC those who fail to come forward by 30 September 2018 will face the potential of significantly higher penalties, naming and shaming and even a criminal investigation.
For more information please get in touch with Andrew Walker, or your usual RSM contact.