Currently HMRC have four, six or 20 years (for mistake, careless or deliberate behaviour respectively) to assess tax that is due. Draft legislation issued on 6 July 2018 has extended the four and six year time limits such that HMRC will always be able to assess at least 12 years of back taxes for offshore non-compliance.
The four, six and 20 year time limits will continue for onshore non-compliance. Therefore, for the first time there is divergence on periods taxable between onshore and offshore.
This new provision applies to Income Tax, Capital Gains Tax and Inheritance Tax where the lost tax involves an offshore matter or an offshore transfer, both of which are widely drawn and include income or capital gains arising on a source outside the UK, assets situated or held outside the UK and activities carried on outside the UK, or where the income or disposal proceeds is received outside the UK or transferred outside the UK.
The original consultation on extending the time limits included whether the provision should be extended to Corporation Tax but it has been confirmed it will not be.
This extended time limit does not apply if HMRC have received information from overseas by mandatory automatic exchange before the time limit that would otherwise apply (four, six or 20 years) and HMRC could reasonably have been expected to be aware of the lost tax from that information. It is unclear how this will be interpreted.
The new legislation will apply for years 2013-14 and 2014-15 in cases where the loss of tax is brought about by careless behaviour and for years 2015-16 onwards in other cases, following Royal Assent.
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