Author Mark Fairlie

In a new campaign, HMRC is targeting individuals who have made profits overseas but who have not declared them in the UK for tax purposes.

Following recent controversies over tax evasion, as highlighted by the recent publication of the Paradise Papers, HMRC are now warning all taxpayers who have undeclared non-UK profits to notify them by September 2018 or face an escalating series of fines and penalties.

What is the Requirement to Correct (RTC)?

This new legislation will affect anyone with “undeclared offshore tax liabilities” in the forms of income tax, inheritance tax or capital gains tax.

Taxpayers will be expected to declare all offshore income, capital gains, and assets held or made outside the UK as well as income and capital gains made in the UK but not reported to HMRC up to and including 5th April 2017.

Those declaring these liabilities on or before September 30th, 2018 will have to find out the money they owe and pay both the tax and any interest due.

Offshore Tax: taxpayer may face steep fines

HMRC’s new powers for challenging these claims mean that any outstanding money owed as of April 5th, 2017 must be reported, or the taxpayer will face steep fines.

Those disclosing their liabilities after the September deadline, or those whose undeclared earnings are discovered through a tax investigation, could face penalties for ‘failure to correct”.

The fines start at 200% of the original amount owed, rising to 300% if HMRC believes any assets were moved deliberately to hide their tax liabilities.

Partner at Stephenson Harwood, James Quarmby, has warned that even a

“simple, honest mistake could result in all the income of a higher rate taxpayer disappear by way of penalty.”

HMRC are specifically targeting taxpayers who have failed to complete a return, made errors on their return, or did not tell HMRC when they should have been issued a return to fill out.

Penalties can be reduced by HMRC if they believe the taxpayer has a “reasonable excuse” for failing to

By H.M. Revenue & Customs [CC BY 2.0], via Wikimedia Commonscorrect, but the fee will not go any lower than 100% of the money owed.

Those who owe more than £25,000 in offshore tax liabilities may also face an additional 10% asset penalty.

300% of the original tax may be charged if HMRC believes assets were moved deliberately to conceal liabilities from them.

The taxpayer’s behaviour and cooperation during the investigation could also potentially result in their penalties being increased, or even in the evader being named and shamed.

Quarmby has said the new RTC legislation could make the UK a hostile place to do business, which may also “drive wealth out of the country”, and leave the remaining taxpayers to “pick up the 30% of tax revenue which has disappeared”.

Time limit changes

In most cases, HMRC will look at the past four tax years when issuing tax assessments. Where a taxpayer has been accused of careless or deliberate behaviour in the past, they are able to go back as far as 20 years into the individual’s tax history.

HMRC have now proposed extending their time limits when investigating a taxpayer’s liabilities overseas. Tax disputes expert at Pinsent Masons, Jason Collins, said the time extension

“means HMRC will be able to analyse at least 20 years of back taxes where there is an offshore element.”

In their drive against offshore tax planning, Collins believes HMRC have “cleverly bought itself double the time to analyse, track down and pursue such non-compliance” by changing their time limit.