In March 2019 HMRC published an update of the earlier 2013 “No Safe Havens” offshore tax compliance strategy. Since 2013, the offshore landscape has changed significantly. Currently, more than 100 countries have adopted the Common Reporting Standard (CRS) as their process to automatically exchange tax information data. By 30 September 2018 all countries had exchanged tax data with the relevant tax authorities, such as HMRC, providing a vast amount of data on UK residents with offshore interests.
CRS was the catalyst to changing the approach of HMRC to voluntary compliance with beneficial disclosure facilities, including the Liechtenstein Disclosure Facility and similar arrangements with the Crown Dependencies, prematurely curtailed in 2015. Voluntary compliance was predicated on the assumption HMRC could not identify those UK residents with investments offshore, that justification no longer existed once CRS was adopted as the global standard for exchanging tax information.
HMRC’s 2019 strategy makes interesting reading, it suggests the earlier 2013 strategy had a focus predominately on tackling tax evasion. Now that HMRC’s offshore compliance activity has been quoted as having recovered over £2.9billion since 2010, the focus is widening from purely tax evasion, to now including tax avoidance and what it likes to describe as ‘error’.
HMRC has signalled for some time that it sees offshore avoidance as a significant risk from a compliance perspective. Recently introduced legislation has increased the assessing period for offshore arrangements from 6 to 12 years. There is little in the strategy explaining what HMRC describes as “error”. The only reference is on future preventative measures through new systems and processes, which will be designed as part of the “Making Tax Digital” (MTD) initiative to ensure customers do not make mistakes. It is perhaps difficult to envisage HMRC’s concept of “error” in historic offshore tax planning. Generally speaking, arrangements are put in place by highly experienced tax advisers who, whilst may not be directly responsible for filing the clients SA Return, still have an obligation to ensure clients correctly report income or gains.
One surprising statistic reported by HMRC is the number of UK residents who apparently notified an intention to disclose under the Requirement to Correct (RTC) provisions. The number referenced in the strategy is 18,000, seemingly less than originally envisaged. No Safe Havens refers to approximately 3 million persons with offshore interests, which suggests only 18,000 registering for RTC seems disproportionate even when including those who disclosed under earlier disclosure opportunities.
This would suggest a significant number of individuals who, either do not recognise they may be non-compliant or, who deliberately chose not to notify the need to make an RTC correction. For either category, they now face an uncertain future with the threat of draconian penalties or potentially a criminal investigation, should HMRC identify offenders. This risk similarly applies to their professional advisers who may face a challenge from HMRC under its “enablers” legislation in certain circumstances.
It has often been advocated that there is a the need for specialist tax advice regarding offshore compliance and never more so than in the current and future climate. Simple oversight regarding RTC is no excuse from an error or outdated sophisticated tax planning perspective, the assessing time limits are complex, and the array of penalties are challenging.
For those who have chosen to persist with tax evasion through deliberately concealed offshore investments, ignoring RTC and earlier disclosure opportunities, HMRC has made it very clear they will be relentlessly pursued either criminally or civilly.
It will be interesting to see the future proposals under MTD in terms of reporting future liabilities, with the intention to reduce error levels. However, it is now vitally important UK taxpayers and their professional advisers, or offshore trustees, recognise the need for accuracy in reporting tax liabilities to avoid an unnecessary and costly HMRC intervention.
The latest legislative changes regarding offshore trusts, including the UK matching rules and protective trusts for UK resident non-domiciled beneficiaries, are a prime example of particularly complex reporting requirements. Ensuring UK residents with complex tax affairs are suitably tax compliant for the past and remain compliant for the future is imperative, the potential downside could be catastrophic!
