In line with recent moves towards hardening the Government’s stance on the use of offshore jurisdictions to avoid UK tax, HM Revenue & Customs (HMRC) are consulting on extending the minimum time limit in which they are able to assess tax arising from “offshore arrangements” and offshore non-compliance.
Currently HMRC have four, six or 20 years (for mistake, careless or deliberate behavior respectively) to assess tax that is due. The consultation is proposing to extend the four and six year time limits such that HMRC will always be able to assess at least 12 years of back taxes for offshore non-compliance. The four, six and 20 year time limits will continue for onshore non-compliance. Now there is segregation for taxable periods between onshore and offshore.
What are “offshore arrangements”?
This term has not been defined but is expected to include the use of trusts and companies.
HMRC believes that it often takes longer to establish the facts relating to offshore arrangements.
Requirement to notify HMRC of offshore structures
The Government has also published a response to its consultation into the proposed requirement to notify HMRC of the creation of offshore arrangements.
Requirement to Correct (RTC) and Failure to Correct (FTC)
Taxpayers who have outstanding offshore tax non-compliance as at 5 April 2017, and which was committed on or before 5 April 2017, need to correct the position on or before 30 September 2018. Where tax liabilities have not been corrected and are subsequently established, penalties for Failure to Correct (FTC) will bite.
It is the FTC which is penalised, not the original behaviour which led to the tax liability. FTC penalties apply to those who took reasonable care as well as those who were careless or displayed deliberate behaviour.
Penalties will start at 200 percent of the tax liability (can be reduced but to no lower than 100 percent). The only defence to a FTC penalty is that a taxpayer has a reasonable excuse. The provisions in the legislation specifically disqualifies tax advice received in certain situations.
What should be done?
Taxation in most jurisdictions around the world are complex as well as interactive. Taxpayers who have complex tax affairs in the UK and/or have cross border matters should seek specialist advice.
Anyone wanting to discuss this further can contact me at firstname.lastname@example.org or Andy at email@example.com.