Punitive Regime Looms For Undeclared Offshore Tax

Taxpayers and Trusts face fines starting at 200%, and being named and shamed, warns leading Tax expert.

A leading tax expert is warning that new legislation targeting taxes from undeclared offshore income will bring a punitive regime of penalties starting at 200% of underpaid taxes, a surcharge of 50% for deliberate avoidance and a very real prospect of taxpayers being named and shamed.

Greg Hare, a partner with Baldwins, is urging taxpayers and trusts with undeclared income to take advantage of a disclosure ‘window’ before strict new rules come into force on 1st October 2018.

He said: “Disclosure will apply to undeclared offshore income, assets, transfers and investments, and the applicable taxes include Income Tax, Capital Gains Tax and Inheritance Tax.  Qualifying disclosures will be subject to interest charges and the ‘general’ penalty regime, ranging from 0% to 30%, but deliberate behaviour will attract significantly higher penalties.  In the latter category, taxpayers or trusts should seek urgent assistance to notify HMRC.”

He added: “If HMRC has not received disclosures by 30th September, the new punitive regime comes into force, with significant penalties of 200% plus.  These could be negotiated down to a minimum of 100% if there is full disclosure and co-operation.  The defence of ‘reasonable excuse’ is available, but by and large there is little room for manoeuvre due to ignorance or human error.

“We would urge any taxpayers or trusts that may be in this position, or even think they may be affected, to seek advice as soon as possible.  The financial consequences of not doing so could be significant, and the reputational damage from being named and shamed could last a lifetime.”

Baldwins has highlighted other points that will apply from 1st October.

  1. Further penalties of 50% will apply if a taxpayer has been moving assets between jurisdictions to deliberately avoid taxes.
  2. An ‘asset-based’ penalty for serious cases of fraud, with penalties of up to 10% of the asset value.
  3. The ‘Naming and Shaming’ option will apply for tax owing over £25000.
  4. HMRC will be able to extend the current timeline of 6 years up to 10 years
  5. In the event of fraud, the extension will be up to 24 years.

Greg Hare added: “With global sharing of data and information arising from the Common Reporting Standard, HMRC is increasingly aware of offshore investments and assets, and therefore of the income that is being generated.  The only way to deal with this new tax requirement is to comply with the legislation, and to resolve any unpaid taxes sooner rather than later.”