The taxman has published a one-page warning with the message “come to us before we come to you”, telling taxpayers it is getting tougher on those not paying the right amount of tax on their offshore accounts.
As part of the crackdown, millions of UK taxpayers are being sent the missive by their IFAs, who have been given until the end of August to explain to all clients the risks of failing to declare offshore-held money and assets.
The government decided to task financial institutions and advisers with making their clients aware of their reporting obligations because it believes they are better placed than HMRC to know whether they are likely to have offshore income.
Crackdown on tax avoiders
The letter tells people who need to bring their tax affairs up to date to “act now” by using the worldwide disclosure facility, a streamlined method for owning up to unpaid offshore tax, which will result in penalty charges of up to 200% of what is unpaid.
“Penalties are increasing for those who are not paying the right amount of tax on their offshore assets, and you can even face criminal prosecution,” the missive from HMRC said.
In a reference to a new regime being introduced in September 2018, it also warns that penalties are due to rise further.
“Under new rules, you could face further penalties based on the value of the assets as well as the tax due, resulting in potentially life-changing consequences.”
However, HMRC’s notification letter includes an assurance that no action is needed from those whose tax affairs “are up-to-date and complete”.
The letter also informs taxpayers of the global transparency efforts put in place by more than 100 countries that are already sharing new information about assets held in their jurisdictions by adopting transparency rules known as the Common Reporting Standard (CRS).
In September, the UK tax agency will receive information about UK residents’ foreign assets from dozens of early adopters of CRS. The remaining countries will swap data from September next year.
“The world is becoming more transparent,” HMRC warned.
“From 2016, HMRC is getting new financial information about our customers from more than 100 jurisdictions – including details about overseas accounts, structures, trusts, and investments,” which it is using “to identify the minority who are not paying what they owe”.
‘Paper tiger’ exercise
However, some commentators were somewhat sceptical about HMRC’s ability to follow up on its pledge.
“We do not know how much information HMRC will receive as yet. Nor do we know its quality. But what we do know is that HMRC will receive it whilst undergoing a pointless and costly physical reorganisation of premises in the course of which thousands of jobs will be shed,” Richard Murphy, a professor of practice in international political economy at City, University of London, wrote in his blog.
The economist, who is a former member of the Tax Justice Network (TJN), often takes part in the debate on what he views as harmful tax practices and offshore finance via his blog.
“I welcome the requirement, as I welcome automatic information exchange from tax havens, which I campaigned for when the idea was considered absurd,” Murphy pointed out in a blog post titled HMRC’s offshore paper tigers.
“My concern, in that case, is simply that the data will not be used. And, if the belief that this exercise is a paper tiger spreads as a result, the behavioural response on which HMRC are most relying will not materialise,” the tax expert wrote.
“HMRC have imposed a massive admin exercise on tax advisers. I am not arguing with their right to do that. But the evidence is that HMRC may not have the resources to deal with the consequences. And that worries me, a lot.”