HMRC allows more time under 'last chance' disclosure facility for complex matters

Paul Noble a tax investigations expert at Pinsent Masons the law firm behind Out-Law.com said: "The worldwide disclosure facility gives one last chance to straighten out offshore tax irregularities before some very penal rules come into force in September 2018".

"It is welcome that HMRC have added this facility to apply for additional time in the most complex cases as some taxpayers will have convoluted offshore affairs going back a number of years, which can take time to unravel" he said.

Tough new penalties are being introduced from 30 September 2018 for those that have made errors in their UK tax returns relating to ‘offshore tax matters’.

A new legal obligation will require taxpayers to correct any returns that fail to properly report offshore matters that would give rise to a UK tax liability. This 'requirement to correct' is a final opportunity to put things right before new penalties come into force.

Penalties will start at 200% of the tax liability. The penalty can be reduced to 100% of the tax liability, but no lower. In addition, in the most serious cases a further penalty of up to 10% of the value of a relevant asset can also be imposed and HMRC will be able to ‘name and shame’ on their website.

The requirement to correct and the worldwide disclosure facility are precursors to the introduction of the Common Reporting Standard (CRS) which, by September 2018, will see information being provided to HMRC about accounts held by UK residents in around 100 countries.

The worldwide disclosure facility is available to anyone who wants to disclose a UK tax liability that relates wholly or partly to an offshore issue. An offshore issue includes unpaid or omitted tax relating to income arising from a source in a territory outside the UK, assets situated or held in a territory outside the UK or activities carried on wholly or mainly in a territory outside the UK.

In order to use the facility taxpayers must notify HMRC of their intention to make a disclosure and they then have 90 days to make the full disclosure and calculate the final liabilities including tax, duty, interest and penalties.

The revisions to the terms of the facility mean that now "in exceptional circumstances" taxpayers whose "affairs are particularly complex", can apply for up to 90 additional days from notification in which to make your disclosure, giving up to 180 days in total. So that taxpayers can seek clarification of complex issues before submitting a disclosure, HMRC has also updated its non-statutory clearance process to introduce a new clearance route that can be used only by those who have registered to make a disclosure of offshore liabilities.

The disclosure facility offers no special terms to those taxpayers who choose to come forward. They will still have to pay penalties and interest. Previous disclosure facilities offered by HMRC included special terms such as penalty reductions and reduced disclosure periods. The closure of these facilities, which included the Liechtenstein Disclosure Facility (LDF) and the Crown Dependencies Disclosure Facility, was accelerated by the UK government as part of the 2015 Budget.

"Those with offshore interests must be confident that their affairs are in order. The requirement to correct is, in part, aimed at individuals and trustees who do not classify themselves as having evaded tax but may have out-dated or less than robust tax planning or structures in place. It is therefore vital that those with offshore tax issues consider their historic UK tax compliance as soon as possible and certainly well in advance of 30 September 2018 so that disclosures can be made and draconian penalties avoided" Paul Noble said.