It is now less than 9 weeks to go until the closure of the Requirement to Correct window on 30 September 2018. This will mark a crucial turning point in the way that HMRC deals with offshore tax non-compliance.
The Government recently issued draft legislation as part of the Finance Bill 2018-19 that seeks to increase the time limit for HMRC to collect tax in cases involving ‘offshore matters’ and ‘offshore transfers’. Once enacted the legislation will allow HMRC to make tax assessments up to 12 years after the end of the relevant tax year for Income Tax and Capital Gains Tax or 12 years after the date of a chargeable transfer for Inheritance Tax.
The extended time limits will apply to all non-deliberate non-compliance, therefore covering both innocent and careless mistakes. The existing 20 year time limit will also still remain in place for deliberate tax errors.
This comes after oral submissions in Spring of this year made by David Richardson, interim Director General, Customer Strategy and Tax Design at HMRC to the Treasury Sub-Committee, that:
“In the avoidance space, we have pretty well go the full hand we have been looking for as a result of measures that have been introduced over the last five or six years”
The clear message from HMRC through this and other statements made in evidence is that HMRC believes it currently has all the tools necessary to tackle tax avoidance. Importantly, looking forwards, HMRC’s oral evidence also suggested that they view the Common Reporting Standard (CRS) as a ‘game changer’ and the strategic driver of the next fundamental shift – the battle against tax evasion, and in particular offshore tax evasion:
“We have had the first batch of that data [CRS] from the first 50 jurisdictions that signed up, but this autumn we are due to get information from the 100 jurisdictions that have signed up. That will provide us with data that we have never had before on a comprehensive basis of people in the UK putting money offshore” (Source: Ibid)
This timing of the closure of the Requirement to Correct window on 30 September 2018 clearly aligns with when HMRC will receive the majority of the data transfer via the CRS protocol and signals a definite change of stance.
Indeed, many advisers will have already seen via their clients in recent weeks letters from HMRC’s specialist units dealing with wealthier taxpayers concerning the Requirement to Correct. Some of these letters, which the ICAEW describes as “aggressive in tone”, already request additional pieces of information that HMRC considers relevant. The letters may be silent however on the point that a defence of reasonable excuse may exist even after the closure of the Requirement to Correct window. The ICAEW and other professional bodies are currently discussing these concerns with HMRC.
In this environment, to do nothing within the remaining 9 weeks or so of the Requirement to Correct window is not a viable option with a standard penalty of up to 200% of the tax underpaid, plus a potential 10% Asset Based Penalty (ABP), plus ‘naming and shaming’ in the most serious cases. These coming weeks are in reality a final chance to clear up undeclared UK tax liabilities from the past before the imposition of much more severe sanctions and a further hardening of HMRC’s approach.
How Can Trident Tax Help?
At Trident Tax we have since Royal Assent of Finance Act (No.2) last year operated a diagnostic tool, on a completely anonymous basis and at no cost, that will review historical client structures within the current Requirement to Correct window. This can help support some of the technical workload during this busy time.
The questionnaire can be completed and submitted electronically and once received we will conduct an initial review of a structure and produce a short report free of charge which will highlight any areas of concern and where irregularities are identified outline further action as necessary within the Requirement to Correct window.
We have been operating this diagnostic service for many months now and will continue to do so right up until Friday, 14 September 2018. We have produced a large number of these reports for professional trustees, advisers and their clients and where issues have been identified overwhelmingly they have arisen entirely unintentionally, or because previously correct advice has since become obsolete. These are issues which can usually be easily addressed in good time now before the harsher regime comes into force on 01 October 2018.
If you would like to find out more about our free anonymous diagnostic review service please email firstname.lastname@example.org or contact your local Trident Tax office.