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Budget 2017: Extended investigation time limit for offshore non-compliance

The UK government is planning to extend the time limit to 12 years for HM Revenue & Customs (HMRC) to investigate all offshore tax non-compliance, according to documents released as part of the Budget.22 Nov 2017

 A Treasury document entitled 'Tackling tax avoidance, evasion and non-compliance' states that the government will consult on the proposal in Spring 2018.

“This time extension means HMRC will be able to analyse at least 12 years of back taxes where there is an offshore element," said Jason Collins, a tax disputes expert at Pinsent Masons, the law firm behind Out-Law.com.

The current time limit for assessment where tax has not been paid is four years. However, this is increased to six years if the taxpayer has been careless and twenty years if there has been fraudulent conduct. The current proposal is that the time limit would be 12 years for all offshore non-compliance without HMRC needing to establish deliberate non-compliance.

“This is the Government's response to the Paradise Papers.  Despite the noise, offshore centres are not teeming with service providers helping their clients evade taxes. Non-compliance will largely be technical in nature or based on genuine mistakes. HMRC has cleverly bought itself double the time to analyse, track down and pursue such non-compliance" Collins said

In response to the Panama Papers, work undertaken by HMRC resulted in 66 criminal and civil tax investigations, and HMRC have asked the International Consortium of Investigative Journalists (ICIJ) for the data from the recent ‘Paradise Papers’ to see what further investigations are required, the Treasury document says.

Earlier this month the ICIJ released details of 13.4 million documents, dubbed the 'Paradise Papers', reportedly obtained from sources including offshore law firm Appleby and corporate services provider Estera. The documents allegedly contain details of the way individuals, companies and investment funds utilise offshore jurisdictions including Bermuda and the Cayman Islands to structure their businesses.

This followed a similar release of documents by the ICIJ last year (the 'Panama Papers'), sourced from Panamanian law firm Mossack Fonseca.

The new extended time limit is part of a package of measures designed to tackle offshore tax evasion. The first exchanges of information about UK residents with offshore accounts took place this year under the Common Reporting Standard (CRS). By September 2018, the CRS will see information being provided to HMRC about accounts held by UK residents in around 100 countries.

A new strict liability offence applies from the 2017/18 tax year. The offence applies if a UK taxpayer fails to notify HMRC of his or her chargeability to tax, fails to file a return or files an incorrect return in relation to offshore income, assets or activities. There will be no need for HMRC to prove that the individual's actions were dishonest.

In addition tough new financial 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.