HM Revenue and Customs (HMRC) has been cracking the whip on tax evasion for a few years and it seems to be paying off, according to information gathered in a Freedom of Information (FOI) request by Access Financial.
The accountancy firm found that the elite Offshore, Corporate and Wealthy unit, which sits within the Fraud Investigation Service at HMRC, collected £560m ($698m, €622m) from offshore tax investigations in the 2018/19 tax year.
This is up 14% from last year and 72% more than in 2016/17.
The unit, which targets high net worth individuals and businesses with undeclared offshore interests, started 827 investigations in 2018/19, representing a yield of £677,146 per case.
In 2016/17, there were 842 investigations, which resulted in £325m of additional tax, an average of £385,986 per enquiry.
The Offshore, Corporate and Wealthy unit was set up in the wake of the April 2016 Panama Papers scandal.
Kevin Austin, chief executive of Access Financial, said: “HMRC’s new offshore unit is becoming much better at focusing its resources on the biggest tax threats.
“It is staffed by highly experienced lawyers and accountants and is armed with a vast amount of data and sweeping powers. It has already increased the amount it is netting from investigations by more than two thirds in just two years and this is likely to be a foretaste of much more to come.
“The unit is sifting through huge amounts of data, including information on bank accounts from offshore financial centres such as the Channel Islands, Bermuda and the British Virgin Islands.
“HMRC is able to use this data in conjunction with ‘Connect’, a software system designed to analyse vast amounts of personal and commercial information and establish links between individual taxpayers and businesses, income, assets and transactions.”
The UK taxman is also benefitting from the global automatic exchange of information under the Common Reporting Standard (CRS), with the first tranche of countries singing up from September 2017.
This initiative enables tax offices across the world to keep track of taxpayers’ offshore assets and accounts around the world.
Financial institutions including banks, custodians, certain investment entities and insurance companies, trusts and foundations are obliged to report relevant tax information.
“With such heightened worldwide scrutiny, it is more important than ever to make sure clients are paying the right taxes, in the right place, at the right time,” said Jason Porter, director of UK and expat financial advisory firm Blevins Franks.
“If clients get it wrong – even unintentionally – the penalties can be severe.”
In 2018, Requirement to Correct (RTC) rules put the responsibility on UK taxpayers to regulate their offshore affairs.
Around 18,000 individuals disclosed undeclared offshore tax liabilities before the 30 September deadline, just before HMRC received a wave of information from the CRS.
Anyone found to still have undeclared offshore income and gains can face penalties of up to 200% of the original tax owed.
Ignorance is no defence
Porter added: “Although the deadline has passed, HMRC has made it clear that those who voluntarily declare and correct their offshore tax arrangements will be in a much better position than anyone who waits until investigators identify their non-compliance.
“Clients who are tax resident in one country and have assets or earn income in another have to take extreme care.
“They need to follow the local tax rules; the UK tax rules and also the relevant double tax treaty to make sure they are correctly declaring income and paying tax where they should be.
“While cross-border taxation is highly complex, getting it wrong – for any reason – can have serious consequences.
“Remember, ignorance is no defence; it is the client’s responsibility to check they have declared all their worldwide tax liabilities and bring their tax situation up-to-date if necessary.”