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HMRC consults on extending offshore investigation time limit

HM Revenue and Customs (HMRC) will be able to look at 12 years worth of back taxes in cases involving an offshore element from April 2019, if the UK government goes ahead with a proposal announced in the last Budget.22 Feb 2018

HMRC has opened a consultation on plans to change the time limits from four years, or six years where a suspected underpayment has been brought about due to carelessness. The time limit will remain 20 years where the taxpayer has acted deliberately or dishonestly.

The consultation sets out the government's proposed changes in relation to income tax, capital gains tax and inheritance tax, along with associated safeguards. It also proposes applying the new time limits in respect of corporation tax, "given that many offshore structures involve corporate entities".

It has also proposed a "proportionate and targeted" application of the new time limits where HMRC has received information about offshore income and assets automatically, under the various international automatic information exchange agreements.

The government intends to apply the new time limits with effect from 1 April 2019 in relation to inheritance tax and corporation tax, and from 6 April 2019 in relation to income tax and capital gains tax. The limits will apply to any year that is still in date for assessment when the new legislation comes into effect, but will not apply to any tax year for which the time limit has already expired.

The consultation closes on 14 May 2018.

UK chancellor Philip Hammond announced plans to extend the time limit for investigations relating to offshore tax non-compliance as part of the 2017 Budget. The government proposed the extension "because it can take much longer to establish the facts about offshore transactions, particularly if they involve complex offshore structures".

"HMRC continues to focus on its perception that offshore jurisdictions continue to facilitate tax evasion and avoidance," said tax investigations expert Paul Noble of Pinsent Masons, the law firm behind

"Revelations such as the 'Paradise Papers' have given HMRC sufficient leverage with politicians to gain increased time for the making of assessments, with its argument being that the complex nature of many of these investigations means that more time will be required to deal with them," he said.

The November 2017 Paradise Papers release of 13.4 million documents, reportedly obtained from sources including offshore law firm Appleby and corporate services provider Estera, allegedly contained details of the way individuals, companies and investment funds utilise offshore jurisdictions including Bermuda and the Cayman Islands to structure their businesses. The release, by investigative journalists at the ICIJ, came shortly after the leak of the 'Panama Papers' sourced from Panamanian law firm Mossack Fonseca.

The extended time limits form part of a package of measures brought forward by the government to tackle offshore tax evasion. The first exchanges of information about UK residents with offshore accounts under the Common Reporting Standard (CRS) took place in 2017. This year, HMRC will receive information about accounts held by UK residents in around 100 countries under the CRS.

A new strict liability offence in relation to offshore tax came into force from the 2017/18 tax year. This 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. HMRC no longer needs to prove that the individual's actions were dishonest. In addition, tough new financial penalties will be introduced from 30 September 2018 for those that have 'failed to correct' errors in their UK tax returns relating to offshore tax matters.