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Increased HMRC powers for challenging offshore tax non-compliance

Posted on 04 December 2017 by Richard Harvey

Increased HMRC powers for challenging offshore tax non-compliance

There has been an extension of HMRC's powers for challenging offshore tax non-compliance with further proposals in the pipeline announced in last week's Budget.

First, a new 'requirement to correct' any offshore non-compliance is now in force. Affected taxpayers must disclose to HMRC any offshore non-compliance giving rise to a UK tax liability outstanding as at 5 April 2017. The deadline for taking this step is 30 September 2018.

Where outstanding UK non-compliance has not been disclosed to HMRC by this date, penalties for 'failure to correct' will arise, starting at 200 per cent of the tax liability (which can be reduced, but to no lower than 100 per cent). This will be in addition to normal penalties and interest in respect of the underlying tax liability. Taxpayers will have a defence only if they had a reasonable excuse for failing to correct. The legislation specifically excludes tax advice received in certain situations. For example, advice given by a person without appropriate expertise or advice that failed to take account of all the taxpayer's individual circumstances (so far as relevant to the matters to which the advice relates) is excluded unless the taxpayer reasonably believes that this is not the case having taken reasonable steps to find out.

Second, a new proposal to extend HMRC's time limits to at least twelve years for assessing offshore tax liabilities has been put forward. In last week's Budget it was announced that there will be consultation launched in Spring 2018.

Currently, HMRC can only go back four tax years when issuing tax assessments (this increases to six or twenty years where there has been careless or deliberate behaviour by the taxpayer respectively). These time limits will remain for onshore tax liabilities. The proposal to triple the standard time limit from four to twelve years applies to offshore tax liabilities only.

HMRC continues its drive against offshore tax planning. Much of this planning will be historic and will involve transactions entered into on the basis of good faith legal or accounting advice. These increased powers will make it easier to challenge these arrangements.