The tax­man de­clares war on hid­den for­eign as­sets

The Daily Telegraph - Your Money - - MONEY - Sam Mead­ows

HMRC threat­ens large penal­ties for those who fail to de­clare over­seas prop­erty or in­come, says Adam Williams

Tax­pay­ers who have hid­den as­sets or in­come over­seas could be hit with fines worth twice the amount of tax owed un­der strict new rules in­tro­duced by HMRC. The “re­quire­ment to cor­rect” (RTC) leg­is­la­tion comes into force to­mor­row and re­quires tax­pay­ers to de­clare any for­eign as­sets that could af­fect their UK in­come tax, cap­i­tal gains tax or in­her­i­tance tax.

Those who no­tify HMRC be­fore the dead­line will be given 90 days to dis­close fully any off­shore as­sets and pay the tax due. Rel­e­vant as­sets could in­clude over­seas prop­er­ties, in­vest­ments or other in­come.

The tax­man has sent in­di­vid­u­als warn­ing let­ters stat­ing that those who do not cor­rect their tax re­turns for pre­vi­ous years could face a fine worth 200pc of the tax owed, plus the tax it­self.

This is twice the size of fine that can cur­rently be levied and rep­re­sents the lat­est as­sault by HMRC on those who have sought to avoid tax.

Do­minic Lawrance, a tax ex­pert at le­gal firm Charles Rus­sell Speechlys, said: “This ‘war on off­shore’ is in­ten­si­fy­ing. HMRC now has a nu­clear weapon against off­shore non-com­pli­ance in the form of the re­quire­ment to cor­rect leg­is­la­tion.

“If a tax­payer al­lows this dead­line to pass and er­rors in re­port­ing are sub­se­quently iden­ti­fied re­lat­ing to non-UK in­come or as­sets, dra­co­nian penal­ties may be im­posed, on top of the tax that is due.”

Mr Lawrance said tax­pay­ers who were caught out by the rules could also be “named and shamed” by the tax­man, as well as be­ing forced to pay any fines. He added that while the rules would help flush out tax evaders who were il­le­gally shield­ing their wealth over­seas, they would also in­crease the bur­den on law-abid­ing cit­i­zens.

“The changes mean ac­ci­den­tal non­com­pli­ance can also re­sult in heavy penal­ties,” Mr Lawrance said. “Non­doms are par­tic­u­larly at risk, thanks to the com­plex­i­ties of the tax rules ap­pli­ca­ble to them and the fact that such in­di­vid­u­als are in­trin­si­cally more likely than UK-domi­ciled tax­pay­ers to have for­eign as­sets.”

The Sept 30 dead­line has been im­posed be­cause from Oc­to­ber HMRC will be able to ac­cess much more in­for­ma­tion about as­sets that are held over­seas.

The “com­mon re­port­ing stan­dard”, which al­lows tax bu­reaus to see what as­sets are held in other ju­ris­dic­tions, will be ex­tended to cover coun­tries such as Aus­tralia, Sin­ga­pore and Switzer­land.

It brings the to­tal num­ber of coun­tries shar­ing in­for­ma­tion to more than 100. The tax­man has been able to ac­cess in­for­ma­tion about as­sets in coun­tries in­clud­ing France, Ger­many and Spain since last year.

“The zero-tol­er­ance mes­sage from HMRC is that tax li­a­bil­i­ties re­lat­ing to non-UK as­sets or in­come won’t be for­got­ten and in­ac­cu­rate re­port­ing won’t be for­given,” Mr Lawrance said.

Crunch for loan charge pay­ments

A sec­ond change to come into force to­mor­row will af­fect thou­sands of self-em­ployed tax­pay­ers who paid them­selves us­ing loans from trusts. These con­tro­ver­sial ar­range­ments re­duced the amount of tax owed and were gen­er­ally con­sid­ered le­gal at the time, but have since been chal­lenged by the tax­man.

Rangers Foot­ball Club, which pre­vi­ously paid man­agers and play­ers in this way, was among those caught out by the crack­down.

Those who struc­tured their fi­nances us­ing loans now face huge tax bills, some­times of hun­dreds of thou­sands of pounds. About 50,000 peo­ple have fallen foul of the changes.

HMRC had orig­i­nally set a dead­line of May 31 for those af­fected to agree a set­tle­ment, but it was ex­tended to Sept 30 af­ter just 5,000 cut a deal with the tax­man. Those who have not agreed to set­tle will face a “loan charge” in the 2019-20 tax year, when the cost of the orig­i­nal tax bills will be com­bined into a sin­gle tax year.

HMRC said it would “en­deav­our to help” tax­pay­ers look­ing to reach a set­tle­ment af­ter to­mor­row’s dead­line, but said it could not guar­an­tee that any deal would be agreed.

The tax­man has also alerted peo­ple to the forth­com­ing dead­line to reg­is­ter for self-as­sess­ment. Any­one who needs to sub­mit a re­turn for the first time must reg­is­ter with HMRC by Oct 5 to file a re­turn for the 2017-18 tax year. The tax re­turn it­self must then be com­pleted by Jan 31 2019.

Among those who may need to reg­is­ter for the first time are par­ents who re­ceived child ben­e­fit while earn­ing more than £50,000 a year.

Con­trac­tors who face mas­sive fines af­ter us­ing off­shore loans to re­duce tax are be­ing of­fered more du­bi­ous schemes to undo the da­m­age. About 50,000 self-em­ployed peo­ple used these ar­range­ments, widely ac­cepted to be le­gal at the time, and now face a “loan charge” that could put some into bank­ruptcy.

There are at least five com­pa­nies of­fer­ing new schemes that claim to get around the loan charge. Tax ex­perts warned con­trac­tors they could be sad­dled with even big­ger fines in fu­ture if they use them.

Phil Manley, of the ad­vi­sory firm DSW Tax Res­o­lu­tion, said the tax­man had not done enough to crack down on pro­mot­ers and in­stead saw the con­trac­tors them­selves as easy tar­gets.

“HMRC is at­tack­ing the wrong peo­ple,” he added. “It is say­ing these schemes never work – so why doesn’t it shut them down on day one?” HMRC said it had achieved suc­cess­ful prose­cu­tions of pro­mot­ers in the past, al­though a spokesman was un­able to pro­vide an ex­am­ple.

Rhys Thomas, of tax ad­vi­sory firm WTT Con­sult­ing, said he was con­cerned that con­trac­tors could be led into fur­ther en­tan­gle­ment. One scheme re­places the orig­i­nal loans with new tax-free loans. In emails to a po­ten­tial client, a pro­moter claims that the new loans would not need to be de­clared to HMRC.

Mr Thomas said this risked dou­bling the tax charge, as HMRC could seek tax on the new loans as well as the orig­i­nal out­stand­ing loans.

He added: “Even if the scheme does suc­cess­fully mit­i­gate the loan charge, you still need to deal with the orig­i­nal in­quiry and tax li­a­bil­ity.”

The tax of­fice said it had stopped sev­eral pro­mot­ers in the past two years and forced about 30 to hand over de­tails of their schemes.

It has also suc­cess­fully re­ported three com­pa­nies to the ad­ver­tis­ing watch­dog for mak­ing mis­lead­ing claims over tax.

A spokesman said: “Any loan re­pay­ments con­nected to one of these tax avoid­ance ar­range­ments will be ig­nored and the loan charge will still ap­ply, de­spite [tax­pay­ers] be­ing left out of pocket by pro­moter fees.”

‘Li­a­bil­i­ties won’t be for­got­ten and in­ac­cu­rate re­port­ing won’t be for­given’

Coun­tries such as Aus­tralia, Sin­ga­pore and Switzer­land have signed up to an agree­ment to let tax au­thor­i­ties share in­for­ma­tion

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