Undisclosed Overseas Income And Assets

In the United Kingdom, a fresh campaign was launched primarily to focus on overseas income and assets which remained undisclosed or under-disclosed to HMRC.

Overseas assets do not mean assets or funds held in extraordinary geographies or tax havens and comprise any revenue or assets held outside the UK.

HM Revenue and Customs (HMRC) had been requesting UK citizens to be upfront and disclose any offshore revenue or gains on overseas assets prior to September 30, 2018 to steer clear of harsher tax penalties.

For persons and trusts having undisclosed taxes from offshore assets, a new regulatory ‘requirement to correct’ (RtC) was introduced by the government of the United Kingdom. The RtC encompasses capital gains tax, income tax and inheritance tax and provides an opportunity to rectify everything that HMRC could assess on April 06, 2017.

Also Read: Voluntary Disclosure to HMRC

Simultaneously, harsh penalties have been introduced from October 01, 2018 for irregularities in tax returns relevant to overseas issues.

Common Reporting Standard (CRS)

Commencing from October 01, 2018, almost 100 countries that include the UK have been sharing with each other detailed financials on individuals and on businesses under CRS. Data received from banks and financial institutions in addition to countries that were earlier assumed to be tax havens will also form part of the details collected by HMRC. Data collected by HMRC is from international accords that facilitate countries to spontaneously share financial data without prior permission from the account holders. Multiple countries like Panama, Monaco and Switzerland have started sharing details.

This includes data obtained from banks and other financial institutions, including those based in countries previously considered tax havens.

It has been evident how HMRC chased individuals and entities suspected of evading tax intentionally in the case of Paradise Papers and Panama Papers.

CRS has started making non-compliance with tax declarations more noticeable since October 01, 2018. Introduction of CRS is an exceptional stride towards greater communication between tax authorities of different countries leading to close scrutiny of overseas assets owned by UK taxpayers.

Undisclosed Overseas Assets- Focus Areas of HMRC

HMRC is focused on identifying any tax that has been evaded or not paid on undisclosed offshore property, foreign assets or investments and transfer of money across borders.

As per the government of the United Kingdom, following assets will fall under above mentioned category:

• bank accounts,
• cash and cash equivalents,
• debts given to others,
• boats,
• jewellery
• gold and silver items,
• art and antiques,
• government securities,
• land and buildings,
• life assurance policies,
• pensions,
• stocks and shares,
• stockbroker accounts,
• solicitor accounts,
• bond deposits,
• personal portfolio bonds,
• intellectual property rights,

The CRS system has been upgraded with superior capabilities leading to better monitoring of above listed assets by HMRC.

Declaration and Penalties

The opportunity to inform HMRC of any irregularities in taxes from offshore assets prevailed till September 30, 2018. It could be done through a digital disclosure facility.

Taxed individuals could rectify their liabilities through:

• HMRC’s digital disclosure services
• Informing a HMRC delegate in the course of an investigation
• Or utilising any other method adopted by HMRC

There are suitable declaration routes like the Worldwide Disclosure Facility that could be used to declare undisclosed tax obligations originating from overseas revenue, assets etc along with interest and penalties applicable.

If tax evasion is reported on time, an individual will be liable to pay pending taxes within 90 days and there will be some penalty added to that amount.

Also Read: Declare Income to Avoid Prosecution and Penalties

In case of unintentional irregularities or unsolicited declarations, a small penalty of 0-10% is applicable provided complete disclosure and assistance are available. In case of willful tax evasion, a penalty of about 20–30% of the unpaid taxes is applicable provided a timely and voluntary declaration is offered.

Non-disclosure Cases

In circumstances where individuals have not declared offshore obligations by September 30, 2018, harsh penalties will be applicable. The penalty amounts may range from 200% of the unpaid tax and can be reduced up to 100% through complete declaration and assistance. In these cases, type of past liabilities will be immaterial and whether these have originated from manual error or mistake or fraud will not have any impact on the amount of penalty because the penal charges will apply to the failure to correct (FtC) and not to the actual error or crime.

There are ways to claim ‘reasonable excuse’ but in all likelihood, there is going to be strict opposition from revenue authorities. Only a few cases are accepted in such circumstances.

The FtC regulation has clearly described situations that cannot be accepted as reasonable excuses. Every situation will be decided on a case to case basis and the final authority to decide will lie with the tribunal.

There can be instances where the primary penalty amount is enhanced by an additional penalty of up to 50% of the FtC penalty. This can happen in cases where revenue authorities prove that obligations were not paid by a taxpayer in an effort to intentionally avoid taxes by transferring assets between geographies.

A fresh ‘asset based’ penalty has also been introduced for the most heinous tax evasion cases originating from offshore assets. The penalty applicable may be as high as 10% of the asset value. In cases where tax amount is more than £25,000, people’s names can be published in public domain.

The fresh penalties are applicable with retrospective effect. Hence, all past tax years will also be under scrutiny after the implementation of RtC. The introduced regulations have set the time limits on April 06, 2017. This means things accessible on that date will remain accessible for the next four years. This effectively means that HMRC has until April 05, 2021 to issue notices of assessment to individuals and entities. In a nutshell, HMRC is expected to be able to assess careless behaviour of taxpayers for up to 10 years and for intentional or non careless cases assessment can be done up to 24 years and 8 years.

Generally, people are and want to remain honest in their dealings be it professional or personal. There is growing realisation about the fact that dishonesty, evasion and fraud are not sustainable. Real problem lies in the dynamic nature of laws and regulations. Tax laws keep changing every now and then and laws like Requirement to Correct did not exist when a certain violation would have been made.

It is clear that a major chunk of the population with offshore assets is tax compliant. The main target of HMRC is the small percentage of the population that continues to have concealed assets in foreign soil to avoid taxation as per extant legislations. The steep increase in penalty amount is aimed at this category of individuals and entities.

The tax laws of the United Kingdom are complicated and dynamic, hence, there are bound to be some instances where residents unintentionally depend on outdated laws or advice and might have erred in clearing full tax liabilities.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.