NEW_ TAX_ PENALTIES_ RE_ OFFSHORE_ ASSETS_ AND_ BANK_ ACCOUNTS
What’s the issue?
Many people have legitimate reasons for holding non-UK bank accounts or assets. Individuals may invest in overseas investments; they may have business interests in more than one territory or they may inherit assets from a relation who is based overseas, to name but a few examples.
However, offshore assets and bank accounts are viewed with some degree of suspicion by the tax authorities, because they believe that some taxpayers use them to avoid or even evade taxes.
What has changed recently?
Starting in September 2017, HMRC will receive information on foreign bank accounts and foreign financial investments from over 100 countries under the Common Reporting Standard. They will use this information to identify undeclared sources of income.
The government has increased tax penalties for offshore tax failures and errors, which depending on the regime involved can be up to 200% of the tax involved. From 1/4/2017, there can also be further penalties for deliberate failures or errors in relation to offshore assets based on up to 10% of the value of the overseas asset.
Perhaps more worrying is a new criminal offence for offshore tax evasion or failures, which can result in a fine or up to one year in prison! There is no need for the government to prove intent.
The requirements are simply that: –
- The tax at stake must exceed £25,000
- Be income tax or capital gains tax
- Relate to offshore income, assets or activities
There are exclusions for Trustees, Executors or persons with a reasonable excuse.
In this context, the government are requiring all professional tax advisers to warn their clients of the consequences of not declaring tax on foreign bank accounts.
Should you be alarmed?
Well … it depends. If you do NOT have any overseas bank accounts or assets, then clearly this is not an issue for you.
If you do, then you DO need to be careful whatever the background or circumstances.
Make sure your UK advisers have a full and complete list of your overseas bank accounts, assets and investments. There may be nothing to disclose and no action required, but it allows them to form a view as to what if anything is required.
Also, in terms of analysing a person’s behaviours, even if there is an issue or problem at a later stage, HMRC will take a much more benign view if a person has taken professional advice.
What happens if there has been an omission or error?
If there has been an omission or error, the best advice is to make a disclosure to HMRC. It enables you to control the situation and minimise the consequences.
However, any such disclosures need to be handled carefully and it is key to choose the best mechanism by which to approach HMRC.
This is something that you should take advice on. For example, in many cases, the Worldwide Disclosure Facility recommended by HMRC would not necessarily be our preferred route.