Lovin’ this article, but need more advice on your tax affairs?
Get in touch today.
11 April 2019
Introduction
According to Government figures, HMRC have raised over 32.9 billion from tackling offshore tax evasion and avoidance since 2010.
The Requirement to Correct and associated Worldwide Disclosure Facility encouraged over 18,000 individuals to come forward by the 30 September 2018 deadline to tell HMRC about offshore non-compliance for tax years up to 5 April 2017.
HMRC’s latest No Safe Havens policy sets out the department’s new strategy to ensure that the correct UK tax is paid on offshore income. Compared to the previous 2014 policy, it includes all types of error, including innocent mistakes, rather than tax avoidance and tax evasion.
[su_posts template=”templates/teaser-loop.php” id=”10813″ posts_per_page=”5″ order=”desc”]
Following the end of the Requirement to Correct period on 30 September 2018, from 1 October 2018, HMRC may charge higher penalties for offshore matters involving individuals and unincorporated businesses.
The penalties apply to income tax, capital gains tax and inheritance tax. They do not apply to other taxes. They apply to:
For inheritance tax, the penalties apply to inaccuracies in returns submitted for deaths and chargeable events on or after 1 April 2016.
HMRC consider an offshore matter is one where the potential loss of tax relates to:
Errors, failures to notify and the deliberate withholding of information about overseas bank accounts, other investment income, rents from property overseas, and sales of asset overseas will all be treated as offshore matters.
Higher penalties also apply to what HMRC term offshore transfers. Offshore transfers take place when there is a deliberate inaccuracy, failure to notify or withholding that does not involve an offshore matter but:
That is, the higher penalties can also apply in instances where income or gains have arisen in respect of UK assets but there is then a transfer of the proceeds outside the UK. The disposal of a UK investment property and the transfer of the proceeds to an offshore account without disclosing the disposal would be an offshore transfer. However, the transfer of the same proceeds to an offshore account is not a problem where the gain is properly disclosed on the tax return for the relevant tax year and the tax paid.
Offshore transfers only apply for the 2016/17 tax year and later years (or, for inheritance tax, for transfers of value on or after 1 April 2016).
Territories
Penalties for offshore matters are determined by the place where the income or gains arose while for inheritance tax the territory is the place where the asset was located.
HMRC distinguishes three categories of territory, differentiated by the territory’s willingness to share information with HMRC.
Category 1 jurisdictions include EU states, Switzerland the United States, Canada, Australia, New Zealand and Japan. Some offshore financial centres such as Guernsey, the Isle of Man, and the Cayman Islands are also classified as Category 1. Category 3 jurisdictions include Panama, Monaco, Macau and the United Arab Emirates. If a country is not listed under Category 1 or 3, it is Category 2. These include China, Hong Kong, Jersey and the British Virgin Islands. (Learn More…)
Penalties for inaccuracies
The penalties for inaccuracies range from nil in the case of an unprompted disclosure of a careless inaccuracy to 200% for the prompted disclosure of a deliberate and concealed error.
For each category of territory, and the type of behaviour. There is a range of penalties rather than a single one. Where the penalty falls within that range will depend on the degree of cooperation offered to HMRC, what the department describes as ‘telling, helping and giving’.
The potential penalties are summarised in the table below.
Category of territory and type of disclosure | Careless | Deliberate | Deliberate and concealed |
1 Unprompted
1 Prompted |
0 – 30%
15% to 30% |
20% (30% from 6 April 2016) – 70%
35% (45% from 6 April 2016) to 70% |
30% (40% from 6 April 2016) to 100%
50% (60% from 6 April 2016) to 100% |
2 Unprompted
2 Prompted
|
0% to 45%
22.5% to 45% |
30% (40% from 6 April 2016) to 105%
52.5% (62.5% from 6 April 2016) to 105%
|
45% (55% from 6 April 2016) to 150%
75% (85% from 6 April 2016) to 150% |
3 Unprompted
3 Prompted
|
0% to 60%
30% to 60% |
40% (50% from 6 April 2016) to 140%
70% (80% from 6 April 2016) to 140% |
60% (70% from 6 April 2016) to 200%
100% (or 110% from 6 April 2016) to 200% |
Penalties for failure to notify
As for penalties of inaccuracies, the penalties for failure to notify depend on the territory and the behaviour.
Category of territory | Non-deliberate | Deliberate | Deliberate and concealed |
1 Unprompted
Failure to disclose after more than 12 months |
10% to 30% | 20% (30% from 6 April 2016) to 70% | 30% (40% from 6 April 2016) to 70% |
1 Unprompted
Failure to disclose within 12 months |
0% to 30% | 20% (30% from 6 April 2016) to 70% | 30% (40% from 6 April 2016) to 100% |
1 Prompted
Failure disclosed after more than 12 months |
20% to 30% | 35% (45% from 6 April 2016) to 70% | 50% (60% from 6 April 2016) to 100% |
1 Unprompted
Failure disclosed within 12 months |
10% to 30% | 35% (45% from 6 April 2016) to 70% | 50% (60% from 6 April 2016) to 100% |
2 Unprompted
Failure to disclosure after more than 12 months |
15% to 45% | 30% (40% from 6 April 2016) to 105% | 45% (55% from 6 April 2016) to 150% |
2 Unprompted
Failure disclosed within 12 months |
0% to 45% | 30% (40% from 6 April 2016) to 105% | 45% (55% from 6 April 2016) to 150% |
2 Prompted
Failure disclosed after more than 12 months |
30% to 45% | 52.5% (62.5% from 6 April 2016) to 105% | 7% (85% from 6 April 2016) to 150% |
2 Unprompted
Failure disclosed within 12 months |
15% to 45% | 52.5% (62.5% from 6 April 2016) to 105% | 75% (85% from 6 April 2016) to 150% |
3 Unprompted
Failure disclosed after more than 12 months |
20% to 60% | 40% (50% from 6 April 2016) to 140% | 60% (70% from 6 April 2016) to 200% |
3 Unprompted
Failure disclosed within 12 months |
0% to 60% | 40% (50% from 6 April 2016) to 140% | 60% (70% from 6 April 2016) to 200% |
3 Prompted
Failure disclosed after more than 12 months |
40% to 60% | 70% (80% from 6 April 2016) to 140% | 100% (110% from 6 April 2016) to 200% |
3 Prompted
Failure disclosed within 12 months |
20% to 60% | 70% (80% from 6 April 2016) to 140% | 100% (1010% from 6 April 2016) to 200% |
Penalties for deliberate withholding of information
Again, as for the other penalties, those for deliberate withholding of information depend on the territory involved and the behaviour. Given that these relate to the deliberate withholding of information, the minimum penalty applying is 20%, even with cooperation.
Category of territory | Deliberate | Deliberate and concealed |
1 Unprompted
1 Prompted |
20% (30% from 6 April 2016) to 70%
35% (45% from 6 April 2016) to 70% |
30% (40% from 6 April 2016) to 100%
50% (60% from 6 April 2016) to 100% |
2 Unprompted
2 Prompted |
30% (40% from 6 April 2016) to 105%
52.5% (62.5% from 6 April 2016) to 105% |
45% (55% from 6 April 2016) to 150%
75% (85% from 6 April 2016) to 150% |
3 Unprompted
3 Prompted |
40% (50% from 6 April 20176) to 140%
70% (80% from 6 April 2016) to 140% |
60% (70% from 6 April 2016) to 200%
100% (110% from 6 April 2016) to 200% |
Asset-based penalties
HMRC may also impose asset-based penalties where the following conditions are satisfied:
The standard asset-based penalty is the lower of 10% of the value of the asset and 10 times the offshore tax at stake.
Conclusion
Given the expansion of HMRC’s concern with offshore non-compliance to include innocent errors and mistakes, and the enhanced penalties that can apply for such errors, it is important to consider what steps can be taken to minimise. As such it is better to make an unprompted disclosure to HMRC rather than a prompted one, whether the error is innocent or not.
For more information on off shore tax matters, simply contact a member of our helpful tax advice team. You can also read more about offshore tax below…
[su_posts template=”templates/teaser-loop.php” posts_per_page=”5″ tax_term=”1298″ order=”desc”]