HMRC Pilot Programme: Helping Taxpayers Get Offshore Tax Right

Posted On: 29 Apr 2021

In this article Amit Puri, Tax Director at Lancaster Knox discusses HMRC’s Pilot Programme to help taxpayers get their offshore taxes right first time.

We’ve been hearing from many of our accounting and bookkeeping contacts with regards to a new prompt by HMRC during the tax returns process.  This was first noted in December 2020 and January 2021 as many were preparing their clients’ personal tax returns.  The prompt advised them to complete the ‘Foreign’ pages section of the return as HMRC were advising them that offshore banking data (from other jurisdictions) had been received, suggesting there could be non-UK income and/or gains needing to be declared.  We’ve also since learned that taxpayers completing their own returns have also seen similar prompts.

HMRC Pilot Programme

The prompts relate to a new pilot programme by HMRC regarding offshore tax declarations. However, many people remain unaware of it as it was only briefly mentioned in their Budget 2021 Discussion Document published on 23 March 2021:“Helping taxpayers get offshore tax right”.

In the document HMRC seek views on ways to help taxpayers get their offshore taxes right first time, encouraging voluntary offshore tax compliance and preventing mistakes. The overriding message was that HMRC want to educate and support those who want to get their taxes right, reserving costly enquiries and interventions for those who deliberately evaded taxes.

A key part of HMRC’s approach involves making use of the bulk offshore banking data it receives automatically (every year) in different ways. For example, HMRC say this could be done by personalising tax returns, removing opportunities to get them wrong, or by sharing data earlier (including contacting taxpayers and their advisers) earlier to prevent non-compliance before it happens.

In practice

HMRC say that innocent ‘errors’ generally account for 10% of the overall UK tax gap and result from mistakes made in preparing tax calculations and completing returns, or in supplying other relevant information, despite the taxpayer taking “reasonable care”.

Whereas “failure to take reasonable care” accounts for 18% of the overall UK tax gap and results from a taxpayer’s carelessness or negligence in adequately recording their transactions, or in preparing their tax returns.

Light-bulb moment?

HMRC now openly recognise the widely held view by taxpayers and professionals that offshore tax reporting failures that are not deliberate are caused by a range of factors including:

  • not being aware of offshore tax obligations
  • guidance and communications relating to ‘offshore income’ not being relevant or clear
  • reliance on anecdotal evidence or out-of-date advice
  • not asking for help and support until the tax return is due

 

Using bulk offshore banking data to promote UK tax compliance

HMRC’s focus is rightly on international data sharing agreements, primarily:

  • Common Reporting Standard (CRS)
  • Foreign Account Tax Compliance Act (FATCA)

The CRS is the most comprehensive agreement, with over 100 jurisdictions committed to automatically exchanging annual financial accounts information. For example, in 2019, HMRC received information on 7.6 million offshore accounts held by UK resident individuals and the entities they controlled. The exchanges began in 2017.

Until very recently, HMRC’s approach relied solely upon identifying non-compliance and intervening after it has happened. Going forward, its aim is to use data earlier on in the registration and self-assessment process to help people get their offshore taxes right first time. This provides taxpayers with help in real time, as they complete their tax returns. It follows that this should minimise the likelihood of costly interventions from HMRC.

In the discussion document, HMRC set out several options for helping taxpayers, including:

  • Reminding taxpayers of the requirement to notify tax chargeability
  • Reminding taxpayers when HMRC send them a notice to file a tax return that they have assets or income overseas to consider
  • Reminding taxpayers when HMRC send them a notice to file a tax return that they have assets or income overseas to consider
  • Reminding taxpayers when they are completing their tax returns, using online prompts, that HMRC already collect and hold data which may detail their offshore assets, identifying the particular countries and assets/accounts
  • Tell taxpayers’ agents about the information HMRC hold on their clients’ offshore income/assets

Digital prompts

HMRC say they want to make more use of ‘prompts’ such as a letter, or a message appearing online while completing a return.

They have confirmed they are trialling a ‘digital prompt’ as part of the personal tax return process. It reminds taxpayers that, through exchange of information agreements, HMRC now receives more data than ever before regarding offshore assets held by UK taxpayers. We understand that from December 2020, this new pilot began using offshore data received under the CRS and FATCA.

Conclusion

Our overwhelming feeling is that this pilot programme and package of potential support promotes voluntary compliance and assists taxpayers in getting things right, first time. After such a long time, it has been refreshing to read about such positive changes in HMRC’s approach to offshore tax. Thankfully – we’re not being told about a new, even tougher stance, painting all taxpayers with the same ‘deliberate/dishonest’ brush.

Next Steps

Our advice remains that taxpayers and their advisers should think carefully when completing tax returns following a prompt of any kind. Whilst this is a pilot programme, HMRC are still very serious in their approach. Failure therefore to react to the information and prompts given, and deliberately filing incorrect tax returns, could result in severe fines.

Anecdotal evidence suggests that people have been quick to include offshore income/gains in their 2019/20 personal tax returns and will no doubt follow this pattern next year. BUT, they need to consider previous tax years too, in which the same income/gains arose and remain undeclared! The Worldwide Disclosure Facility (WDF) generally remains the most appropriate mechanism for doing this.

Regularising the past is more complex than ever, even with an online disclosure submission portal, because the rules governing the number of years to correct and the various penalty regimes to contend with need to be fully grasped… Failing to get this right will likely expose taxpayers to increased financial penalties and non-financial sanctions like public naming and shaming for example.

It’s never been more important to seek ‘independent’ specialist advice to ensure that your historic UK tax affairs are up to date and correct, so that you can look forward to the future with confidence.

For more information about offshore tax declarations or other voluntary disclosures please get in touch with Amit Puri at: amit@lancasterknox.com or by calling: +44 (0) 7747 462731.

Practical Resources

Please also see our other article resources: