HMRC is writing to those with offshore tax risks. What do you do if you get a letter?
“Offshore evasion is illegal and harmful. It is unfair that those who can afford to use expensive offshore banks and complex financial structures can evade their responsibility to pay the taxes which fund vital public services.”
Speaking in 2013, David Gauke – then a junior Treasury minister – ushered in HMRC’s new offshore tax compliance strategy, which in itself was updated in 2019.
No Safe Havens has evolved since its introduction – but its overarching aims are to:
The policy covers a wide spectrum of non-compliance issues, including genuine mistakes made while navigating the increasingly complex offshore tax environment.
Tightening the net
In parallel to the development of No Safe Havens, there’s been a push for better tax transparency internationally.
The result is the Common Reporting Standard (CRS). Introduced in 2014, it brings together over 100 countries to share information on offshore accounts.
In the UK, a key response to CRS has been the Requirement to Correct (RTC). This obliged individuals with offshore liabilities to disclose them to HMRC before 30 September 2018.
Rather than targeting behaviour, RTC acts as a dragnet, scooping up everything from accidental errors to deliberate evasion – and charging unprecedented penalties for either. Fines run to 200% of the tax due – and more than 300% for serious offences. There may be a ‘reasonable excuse’ defence in certain circumstances, but the scope for this is narrowly defined.
Combing the data
When identifying individuals at risk of non-compliance, HMRC has some powerful tools to hand.
CONNECT is a system for finding and linking disparate pieces of information on a taxpayer. It can instantly show every tax document connected with a person – thus revealing all entities and individuals associated with them.
Of course, that leaves HRMC with potentially thousands of individuals to review – which is where ICE comes in.
ICE is a software that creates algorithms within CONNECT, and applies them to populations of taxpayers. This allows HMRC to zero in on individuals with potential compliance risks.
Again, resources will come into play. Finding many hundreds of at-risk individuals is all very well – but it’s too many for to HMRC investigate. The number of people subjected to an individual enquiry or criminal investigation is likely to be low.
The ‘nudge’ letter
With this in mind, HMRC has sent a ‘nudge’ letter to thousands of individuals in its ‘at-risk’ population – and more such letters are expected to arrive on doormats during 2019.
The purpose of the letter is to:
So what should you do if you receive one?
Firstly, take it seriously. HMRC has found a potential issue in your offshore tax affairs – going back up to 20 years. The anomaly may be easily explained; but HMRC is likely to escalate its enquiries if you don’t reply.
Secondly, where possible, contact HMRC. They may give you more information about the asset in question, which will help focus your review of your tax affairs. However, there’s no guarantee they’ll share anything with you.
And thirdly, take the opportunity to step back. Work with a tax expert to review your offshore assets and ownership structures, ensure that they’re operating effectively, and check that there are no issues that you need to disclose.
Remember: a false declaration could be a criminal offence. Careful consideration and professional advice are essential before responding to a nudge letter, or making a disclosure.
The KPMG team has extensive experience of advising on offshore tax, RTC compliance and disclosures to HMRC. You can contact our advisors on:
T: +44 (0)20 7311 2618
T: +44 (0)20 7694 5983
© 2020 KPMG LLP, a UK limited liability partnership, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.