James Hender, head of private wealth and partner at Saffery Champness, said the new duty to correct would become a “complex and thorny issue for both the taxpayer and accountancy profession” in due course.
Penalties for failure to correct are potentially 200% of the tax liability.
“Our experience in these matters is that HMRC’s starting point is often to believe the worst, and it can be difficult to persuade them an error is innocent,” he said.
“Incorrect conclusions can be reached by HMRC when wires are crossed, and with the potentially huge penalties, this is a matter that cannot be swept under the carpet.”
Trust registration penalties
Hender comments: “The announced penalties for the late registration of trusts will have been a bombshell for many, with it remaining unclear right up to the deadline day what the scope of HMRC’s powers would be.
“The requirements are significantly more detailed than the old registration system, which focused on those trusts with income tax or capital gains tax liabilities. The inclusion of stamp taxes in the list means that many trusts that have been in existence for years, but where the trustees have no liability for UK direct taxes, need to be aware that they will be required to consider registration for the first time.
“Whilst HMRC claims that as long as there is evidence that all steps that could be taken to comply have been taken, there is the possibility of registering late without a penalty being issued. However, the reality is it is difficult to quantify ‘reasonable steps’, and trustees should ensure as a matter of urgency that they understand their registration and reporting obligations to avoid any prospective penalties.”
Offshore time limits extension
“Meanwhile, the proposed extension of HMRC’s time limit to investigate offshore tax matters where there has been no fault by the taxpayer, from four to 12 years, significantly expands the taxman’s ability to delve into offshore structures and transactions and sniff out non-compliance,” observes Mike Hodges, partner at Saffery Champness.
“Taken together, HMRC’s rhetoric is increasingly being backed up by a stick which is getting bigger by the day.”