HMRC Announces ?Requirement To Correct? Tax Obligation


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In its latest move against offshore tax evasion, the UK government has outlined plans to impose a deadline for Britons to correct mistakes on their tax declarations.

In its latest move against offshore tax evasion, the UK government has outlined plans to impose a deadline for Britons to correct mistakes on their tax declarations.

The international tax planning landscape has changed dramatically over the last decade or so. When the Common Reporting Standard went live in January 2016, financial privacy was consigned to history.  

This affects everyone who owns financial assets and/or receives income outside their country of residence, including bank accounts, investments, pensions and property. Cross-border tax mitigation can be a minefield for expatriates, and specialist wealth management guidance is necessary these days to have peace of mind – both that you are not paying more tax than necessary and that your arrangements are fully compliant.

Governments throughout Europe want to make sure their taxpayers’ affairs are in order. This includes those who have not taken enough care to get their tax right, those who do not realise they have not paid the correct tax on offshore income or gains, as well those who deliberately chose not to declare all their income and wealth.

Tax authorities now have access to much greater levels of information about offshore financial assets, including trusts, and will start to use this data to detect irregularities with offshore income and gains.   

HMRC’s new “Requirement to Correct”

The UK’s HM Revenue & Customs released a consultation paper on 24th August 2016 called “Tackling offshore tax evasion: A requirement to correct”.

The proposed new legislation gives UK residents with outstanding tax liabilities in relation to offshore assets a deadline of September 2018 to come forward and correct those liabilities.  This applies to income, capital gains and inheritance taxes.

At the end of this period, a simplified but tougher set of sanctions for “failing to correct” will come into effect. Penalties will rise to up to three times the tax that should have been paid. There will also be the increased possibility of criminal charges.  
The consultation’s foreword explains that “the UK is committed to cracking down on tax evasion and will be relentless in its pursuit of evaders”. However, it also recognise that failure to comply with tax obligations is not always deliberate and can be caused by careless and unintentional behaviour. The government supports voluntary compliance to achieve better outcomes for everyone and to put the taxpayer back on a compliant footing.  

The consultation closes on 19th October 2016.  

This follows on from a number of other recent steps against offshore tax evasion. These include increased civil penalties for offshore evaders, a new criminal offence for tax evasion and civil sanctions against those who deliberately enable offshore tax evasion.  

Worldwide Disclosure Facility

Alongside the requirement to correct obligation, HMRC announced that it will open its Worldwide Disclosure Facility on 5th September 2016. Details will be announced at the time.

This was initially announced in the 2015 budget and follows the early closure of the Liechtenstein and Crown Dependencies disclosure facilities.  

It is understood that this new facility will not offer any special terms, so tax, interest and penalties could be payable in full.

Automatic exchange of information

These latest HMRC initiatives look ahead to when it starts to receive data under the Common Reporting Standard.

This new global automatic exchange of information regime is a sea change in how tax authorities share data on taxpayers and their offshore assets and income. HMRC will receive a wide range of data on offshore accounts held by its residents, and the same applies for other tax authorities in Europe.

Over 100 countries have committed to automatically exchange taxpayer information. The 54 “early adopters” began collecting data this year, ready for the first exchange in 2017.  The other countries will begin a year later. All committed jurisdictions will be sharing data by September 2018.

HMRC actually starts receiving information earlier, as the UK’s Crown Dependencies and Offshore Territories will provide data to HMRC this October.  

Jennie Granger, director general of enforcement and compliance for HMRC, said the message was simple: “come to us pay the tax and penalties that are due, before we target you with the introduction of even tougher sanctions and game-changing data.”

Whether you are resident abroad or the UK, you need to review your tax planning from time to time to make sure it is up to date. Consider the changes to local and UK tax legislation and the new exchange of information regime, and review the rules about what income and gains you should be declaring in your country of residence, to make sure you are getting it right. Take advice on the effective and compliant tax efficient arrangements that are available for your investments, pensions and assets to establish the most effective solution for you.

Any questions? Ask our financial advisers for help.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.