Offshore: Higher Penalties to be Imposed by HMRC
HMRC intends imposing higher penalties for offshore matters or offshore transfers involving individuals and unincorporated businesses in certain circumstances.
The increased penalties have been introduced under the Requirement to Correct legislation. The purpose of this legislation is to require those with undeclared offshore tax liabilities for the relevant periods to disclose them to HMRC by 30 September 2018 - allowing HMRC to then take appropriate action.
In a recently published compliance factsheet, HMRC says it may impose higher penalties from 1 October 2018 where there is:
an inaccuracy, or
a failure to notify, or
a deliberate withholding of information
involving income tax, capital gains tax or inheritance tax. The penalties come into play for offshore matters or offshore transfers for all tax years up to and including 2015 to 2016. HMRC gives detailed guidance in the factsheet on the new penalties, and when and how they may be imposed.
What are the increased penalties?
An individual or unincorporated business could now be liable to pay a minimum penalty equivalent to 100% of the tax owed in relation to offshore issues for the tax years 2015-2016 and earlier. However, there is an exemption for those who can satisfy one of the limited criteria for supplying accurate and full relevant information after 30 September 2018, and can make a disclosure that no tax is due.
The minimum penalty HMRC can charge depends on the tax year. For 2016 to 2017 and later years the minimum penalty for deliberate, and deliberate and concealed increase by 10%.
As well as higher penalties for offshore issues, HMRC could also charge are offshore asset moves penalty or offshore asset based penalty. The guidance sets out the circumstance where these may be imposed.
What is an offshore matter?
HMRC explains that an offshore matter is one where the potential loss of tax is charged on or relates to:
income arising from a source in a territory outside the UK
assets situated or held in a territory outside the UK
activities carried on wholly or mainly in a territory outside the UK
anything having effect as if it were income, assets or such activities
For these purposes, ‘territory’ means the place where the income or gains arose; and territory is divided into three categories based on the willingness of the territory to share information with the UK.
What is an offshore transfer?
An offshore transfer takes place when there’s a deliberate inaccuracy, deliberate failure to notify, or deliberate withholding (not involving an offshore matter) and:
taxable income is received in a territory outside the UK; or transferred to a territory outside of the UK before the statutory filing date
disposal proceeds giving rise to a CGT charge are received in a territory outside the UK; or to a territory outside the UK before the statutory filing date
assets giving rise to a charge to IHT are transferred outside of the UK before the statutory filing date
For further information about how the rules apply to relevant tax years, and the appropriate penalties depending on the circumstances and category of territory, we recommended reading the factsheet in full.
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