HMRC steps up investigations into underreported offshore income

Taxpayers are receiving letters from HMRC called “Certificates of Tax Position” which asks recipients to confirm that any offshore income and assets tax have been declared. UK taxpayers will receive these letters if HMRC holds information which shows that the taxpayer may have received income or gains which is taxable in the UK.

If you are unsure as to whether to sign the declaration regarding assets held abroad, you should seek advice from specialist tax disputes lawyers before doing so to protect your position going forward and to correspond with HMRC. Our Tax Litigators provide legally privileged & confidential advice (unlike accountants and other non-legal tax advisers). Our expert tax lawyers are regulated by the SRA and BSB.

Why have I received a Certificate of Tax Position?

You will receive a Certificate of Tax Position as HMRC will have received information through the UK’s tax information exchange agreements with other countries. It is your responsibility to tell HMRC about UK tax liabilites from offshore gains or income worldwide. The Certificate of Tax Position represents your opportunity to declare to HMRC any offshore income that you may have to pay UK tax on.

What is “offshore income”?

HMRC considers offshore income as any asset which comes from a territory outside the UK. This includes:

  • interest from overseas bank or building society accounts;
  • dividends and interest from overseas companies;
  • rent from overseas properties; and/or
  • wages, benefits or royalties earned outside the UK.

What is offshore non-compliance?

This occurs where HMRC are owed tax because of tax non-compliance and this non-compliance involves an offshore matter. Offshore issues include unpaid or omitted tax on:

  • income arising from a source in a territory outside the UK;
  • assets situated or held in a territory outside the UK;
  • activities carried on wholly or mainly in a territory outside the UK; and
  • anything having effect as if it were income, assets or activities of a kind described above

According to HMRC, the tax non-compliance involves an offshore transfer if it is not an offshore matter, but the income (or sale proceeds in the case of a capital gain), or any part of the income, was either received abroad or was transferred abroad before 6 April 2017.

Moreover, HMRC advice that for inheritance tax, the tax non-compliance involves an offshore transfer if it is not an offshore matter, but the disposition that gives rise to the transfer of value involves a transfer of assets, and after that disposition, but on or before 5 April 2017, the assets, or any part of the assets, are transferred to a territory outside the UK.

In all cases, references to the income, proceeds or assets transferred includes any assets derived from or representing the income, proceeds or assets.

If non-compliance meets the above definitions, then the RTC rule applies and a failure to correct by 30 September 2018 will result in tougher FTC penalties on 1 October 2018.

Examples of off-shore non-compliance

Off-shore non-compliance for Income tax

According to HMRC, an example could include a taxpayer receiving cash payments in the UK. They have failed to declare these cash payments and instead opened and paid these into an overseas account. They have received interest on this overseas account but not declared this to HMRC and has submitted inaccurate tax returns.

Both the failure to declare cash receipts (as an offshore transfer) and the overseas bank interest (as an offshore matter) should be corrected under the RTC rule.

Off-shore non-compliance for Income tax and capital gains tax

Pursuant to HMRC’s requirements, an example could include  taxpayer owning and renting a holiday home abroad with the rental income not being declared to HMRC. The property could be sold and the profit from the sale was not declared to HMRC either.

Both the failure to declare rental income (as an offshore income tax matter) and the gain from the sale (as an offshore capital gains tax matter) should be corrected under the RTC rule.

Off-shore non-compliance for Inheritance tax

There are situations where a taxpayer is domiciled in the UK at the time of their death and their heir inherits the estate which includes monies in an overseas bank account. An heir may take control of the overseas account but fail to disclose this to HMRC.

The failure of an executor to disclose the overseas assets of an estate (as an oversea matter) should be corrected under the RTC, according to HMRC.

How can you avoid higher penalties for undeclared tax liabilities?

HMRC advise that you can avoid being charged the higher penalties by making a disclosure of all undeclared tax liabilities and correcting the non-compliance.

We will provide expert advice tailored to your situation on whether you need to make a disclosure, and if so, the scope required for each type of disclosure. A disclosure can be made in the following ways:

  • using HMRC’s digital disclosure serviceas part of the Worldwide Disclosure Facility or any other service provided by HMRC as a means of correcting tax non-compliance;
  • telling an officer of HMRC in the course of an enquiry into your affairs or
  • any other method agreed with HMRC.

Before you make any kind of disclosure to HMRC, it would be wise to consult our expert Offshore Tax solicitors and barristers.

More information on HMRC voluntary disclosures can be found here.

Expert City of London Offshore Tax Disclosure Lawyers

If you need advice on undeclared income, voluntary disclosure, the Worldwide Disclosure Facility or HMRC campaigns advice, we are available to aid you at every stage of the HMRC disclosure and negotiation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC. Our team specialises in submitting disclosure reports and negotiating potential penalties.

Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results.

Our Tax Disputes professionals are available to give information and advice in negotiating penalties with HMRC. To contact one of our specialist Tax Lawyers please click here or call 02071830529.

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