Encouraging offshore tax compliance – put things right with HMRC or suffer the consequences

09 November 2016

Mike Down

Much has been said over the past few years about HMRC’s quite justifiable tightening of the net as regards tax avoidance and evasion, particularly that involving offshore bank accounts and investments.

The impetus is now about to pick up even more because of the introduction in September of the Worldwide Disclosure Facility (WDF) and further legislation to come. Linked to the Common Reporting Standard (CRS), under which 100 jurisdictions will freely share financial information, HMRC fully expect the WDF to encourage those with tax irregularities to come forward and voluntarily own up and pay up before the taxman gets to them first.

A key part of HMRC’s future activity in pursuing those who have not paid the right amount of tax from offshore structures will be based on the 'Requirement to Correct' (RTC), details of which have been subject to consultation. It is anticipated that further announcements will be made in the Chancellor’s Autumn Statement later this month.

The proposed legislation behind the RTC will introduce a series of new measures under which those with undeclared tax liabilities and who fail to approach HMRC by 30 September 2018 will face significant sanctions. Under what will be known as 'Failure to Correct', such sanctions might include potential penalties of up to 300 per cent of the extra tax, a further asset-based penalty, 'naming and shaming' and an extension of HMRC’s ability to assess back tax by an extra period of five years.

Whilst we applaud HMRC’s increasingly robust efforts to identify and challenge those who are deliberately side-stepping their tax obligations, we have some concerns that those at the innocent end of the scale will be treated too severely. For instance, is it right that those who come forward voluntarily after the deadline are subjected to monetary penalties set potentially at the same level as the additional tax?  Should the concept of 'reasonable excuse' be more carefully defined? And why should HMRC be given an extra five years to assess liabilities because they have too little resource to process the CRS information quickly?

There’s a lot for the Chancellor to consider and we will be making further comment once more precise details of the RTC are known.

If you would like any more information on this issue please contact Mike Down or your usual RSM contact.

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