Spring Statement: HMRC finds out about 5.67m offshore accounts

The 'No Safe Havens' policy paper outlines HMRC's approach to tackling offshore tax non compliance, broadening its 'No Safe Havens' approach from purely focusing on offshore tax evasion to including offshore non compliance as a result of mistakes or by using tax avoidance schemes.

According to the paper, in 2017 HMRC received 1.63m records under the Common Reporting Standard (CRS), relating to accounts held by 1.3m individuals, but in 2018 it received significantly more information as a result of the increase in countries exchanging information.

CRS provides a framework for countries to automatically exchange information on an annual basis about non-residents holding bank accounts and other financial accounts offshore. Over 40 countries, including the UK, signed up to be early adopters of CRS and provided information in September 2017 about financial accounts in existence from 1 January 2016. By September 2018 over 100 countries, including major offshore financial centres such as Switzerland, Singapore and the UAE were exchanging information about accounts in existence from 1 January 2017.

HMRC said that the global implementation of CRS is "shedding unprecedented light" on the overseas arrangements of UK residents. It said that early analysis of the information HMRC received last year suggests around one in 10 UK taxpayers have an offshore financial interest.

"It is important to remember that 1 in 10 having an offshore financial interest does not mean that 1 in 10 have underpaid UK tax as a result of an offshore financial interest," said Josie Hills, a tax investigations expert at Pinsent Masons, the law firm behind Out-Law.com.

"HMRC have begun to send letters to those it has received information on via automatic exchange of information but it seems to be that there are no other criteria being applied, so to many who have complied with their tax obligations, the letters will simply cause an additional administrative burden. For those who do have undeclared offshore income or gains however, these letters should serve as a strong prompt to seek professional advice," she said.

The policy paper also reveals that HMRC estimates that its current civil and criminal investigations resulting from the Panama Papers will yield over £190 million.

HMRC set up a cross-agency taskforce in April 2016, after millions of documents reportedly detailing the use of offshore tax structures in Panama connected to Mossack Fonseca were obtained by the International Consortium of Investigative Journalists (ICIJ). The leaked documents were nicknamed the 'Panama Papers'.

The policy paper sets out that HMRC's strategy to combat offshore non-compliance will  focus on continuing to champion international tax transparency, helping taxpayers get offshore tax right the first time, and taking a proportionate approach to non-compliance.

HMRC said that across the tax system, taxpayer mistakes cost over £9 billion in 2016 to 2017, with 'failure to take reasonable care' making up the largest single element in the 'tax gap'.  It will therefore focus on "helping customers get offshore tax right first time". This will include using new data and insights to design systems and processes.  One example is that more prompts may be included in the online tax return to alert taxpayers if they may be about to make a common mistake.

In the paper, HMRC said that its 'Connect' database cross-references more than 22 billion lines of data including self assessment returns, property and financial data, including overseas account information obtained under CRS. Apparently, Connect identifies more than 500,000 onshore and offshore cases for HMRC to enquire into every year.

In 2017 a new 'Requirement to Correct' past tax non-compliance before 1 October 2018 or face greatly increased penalties was introduced. Under this requirement over 18,000 taxpayers notified HMRC that they wanted to correct past offshore tax non-compliance.

"There will naturally be taxpayers who missed the 30 September 2018 deadline and who are now subject to 'failure to correct' sanctions and may have pondered what voluntarily disclosing would achieve now that there is no perceived benefit in coming forward," Josie Hills said. "However, coming forward is still advisable, as in many cases, it can be demonstrated that the failure to correct sanctions should be mitigated or should not apply at all."

The policy paper stresses that HMRC's 'proportionate approach to non compliance' means that a taxpayer who chooses not to come forward and waits for HMRC to identify that they have paid less tax than they should will always be in a worse position than someone who comes forward voluntarily and cooperates with HMRC’s enquiries.

The policy paper confirms that 'enablers' of tax evasion or avoidance remain a target. HMRC warns it will "relentlessly pursue" enablers using the new penalty regime for anyone who designs, sells, or otherwise enables the use of a tax avoidance arrangement which HMRC later defeats.

HMRC said that it is using a new system that collates data on non-compliant enablers across sectors allowing a holistic view across HMRC.