As another Common Reporting Standard (CRS) exchange of information approaches at the end of September, it is clear the globe is more transparent regarding assets held abroad.
HMRC has greater access to overseas information. Nudge letters are a tangible illustration of HMRC shining a light on the information it has received.
The spotlight does not discriminate between the unwary and the deliberate.
HMRC are stating: “If you are not sure you have told us about all of the offshore income or gains that you may have to pay UK tax on, we recommend that you get professional tax advice.”
HMRC uses it’s CONNECT software and matches information; supplied by overseas banks, insurers, trust companies and others, to cross check against the disclosed UK tax position.
The outcome of inconsistencies are at the least nudge letters and potentially full blown investigations.
Bringing your affairs up to date
HMRC is clear in its mind; taxpayers should regularly check they have declared all of their UK tax liabilities and, if needed, bring their tax affairs up-to-date.
HMRC is unequivocal that responsibility lies with the taxpayer.
Common triggers to consider checking the position are:
- An inheritance of assets overseas
- A change in tax laws change
- A change in residence and/or domicile
- A life event not necessarily directly connected to tax
- A realisation that HMRC will find that which has previously been hidden.
Historic advice that may have been sound but can become out of date, with costly and punitive consequences.
Assets abroad – your options
Doing nothing. Likely to be ill advised, very costly in the long term and runs the risk of not only punitive sanction but also potentially penal.
Move assets abroad to opaque locations. As above, but with even stiffer consequences due to tracing provisions built into the information sharing regime.
Regularise matters before HMRC focusses its spotlight.
HMRC suggests the Worldwide Disclosure Facility (WDF) as a route for those needing to make a disclosure of assets abroad/income; although it doesn’t provide immunity from prosecution.
The Contractual Disclosure Facility (Code of Practice 9 – CoP9) may also be appropriate for some taxpayers; which does provide prosecution immunity but does require an acceptance of deliberate behaviour.
Depending on circumstances, there are other routes to resolve matters with HMRC; these tend to be more relevant for technical corrections.
Penalties have increased in respect of offshore disclosures and can include penalties based on the value of the asset in addition to penalties based on the tax due. Fortunately these provisions are currently restricted to extreme cases but nevertheless the provisions exist.
However, robust penalty costs are likely to be infinitely preferable when compared to a potential prosecution.
HMRC’s message is “If you choose to delay in coming forward, it’s very likely to cost you more and there is also more chance that HMRC will come for you. Come to us before we come for you.”
What can be done?
Dialogue with HMRC regarding not keeping up to date with legislation changes will be different to deliberately hidden assets. However, in both circumstances proactive dialogue is preferable. The consequence being limited penalty costs when compared with HMRC raising the questions first.
If you are unsure or uncertain of your current taxation position or dread the thought of a HMRC communication coming through the post, perhaps now is the time to avoid being a sitting duck.