Taxpayers with taxable offshore income and overseas assets targeted for HMRC’s avoidance initiatives

New proposals are to be introduced to the way that HMRC can act against taxpayers who do not disclose income or gains from assets held overseas. At the moment, the terms of these proposals are in the consultation process, but various professional bodies including the CIOT have been voicing their concerns over the potential implications if the proposals become legislation.

The Government announced in April that they ‘’will introduce a new strict liability criminal offence that could mean jail for those who do not declare taxable offshore income’’. These measures are proposed for anyone who HMRC finds has not declared taxable offshore income, irrespective of whether this is because of deliberate avoidance or simply a mistake; with the potential to make any non-disclosure a criminal offence punishable with a custodial sentence. By removing the availability of the current taxpayers’ defence of having acted with ‘reasonable care’; an offence could be committed even in instances where a taxpayer might have been careless, forgotten to make a payment or simply misunderstood their obligations. 

The consultation document does however offer a number of potential taxpayer defences; including being able to show that “appropriate professional advice” was taken from a tax expert.

In addition to highlighting how the government is continuing to devise ways to catch tax evaders, these proposals demonstrate the importance of getting professional advice if you suspect you might have underpaid tax; and making a voluntary disclosure where possible. It also reinforces the potential value of obtaining fee protection, to cover the cost of professional fees in the event that a full tax enquiry is launched.

New restrictions to Lichtenstein Disclosure Facility

At approximately the same time as this consultation was announced, new restrictions to the way taxpayers may use the Lichtenstein Disclosure Facility (LDF) were unveiled. There have been concerns that the LDF has been open to abuse, especially by employers using Employee Benefit Trusts (we cover this topic in a separate blog this month).

Declaring previously undeclared income within the scope of the LDF can make a significant difference to the potential liability faced by taxpayers because of the capped penalties offered. Now, although the LDF has been extended to 5^th April 2016 and there is no change to the categories of people able to use it, the settlement terms available will become less favourable.

Under the original LDF facility, successful applicants were granted a 10% fixed penalty on underpaid tax liabilities for periods to 5 April 2009. In addition, assessment was limited to accounting periods for tax years from 1 April 1999; there was also the ability to choose a single composite rate of tax of 40% rather than calculate actual liability on an annual basis.

Now, with the new restrictions, if a taxpayer has not disclosed their offshore liabilities in full already, they will no longer have access to the full favourable terms of the LDF. These restrictions also extend to cases where the disclosures fall within the Disclosure of Tax Avoidance Scheme (DOTAS) rules and to cases with no substantial connection between liabilities being disclosed and the offshore asset held by the taxpayer on 1 September 2009.

Clearly, the rules governing disclosures to HMRC are becoming ever more complicated. If you have overseas assets and you think you may have underpaid taxes, please discuss your circumstances with one of our tax experts as soon as possible. In all cases when considering making a voluntary disclosure it is important to take professional advice before approaching HMRC in order to fully understand the implications.

For more information please email Lesley Stalker or Anne Eager.