The Ticking Clock

Andrew Park offers a timely reminder to those of you with offshore clients

TIME IS RUNNING OUT for taxpayers who need to take steps to correct their offshore tax affairs, or deal with outstanding loans from disguised remuneration arrangements to ensure that a new loan charge will not apply. In each case, affected taxpayers need to contact HMRC and provide the necessary information by 30 September 2018.

REQUIREMENT TO CORRECT OFFSHORE TAX AFFAIRS

Taxpayers who need to disclose any income, gains or inheritance tax matters relating wholly or partly to an offshore issue that should have been subject to UK tax must take the necessary steps to correct their tax position by 30 September 2018.

Action required

All taxpayers who have (or who had) any offshore financial connections (including those who consider themselves to be non-UK domiciled and/or non-UK resident) need to review their UK tax affairs to ensure that all tax returns are submitted and correct. This includes checking:

• The implementation of planning.
• That technical opinions (e.g. that someone is non-UK domiciled) are still correct.
• Whether a tax avoidance arrangement achieves its aims.
• Whether advice taken in the past was refreshed when the law or their circumstances changed.

It will be important to involve appropriately competent independent professional advisers in carrying out a review and to provide all relevant information to them.

If an open HMRC enquiry includes ‘offshore issues’, steps may need to be taken to notify HMRC of any such issue by 30 September 2018.

Serious consideration should be given to making a protective nil tax disclosure before the deadline, in case HMRC disagrees with a technical view, etc., used when preparing a tax return. In addition, carrying out a ‘health check’ of a taxpayer’s position is likely to provide a strong defence that a taxpayer has a reasonable excuse for anything overlooked despite their and their advisers’ best endeavours. It should be noted that in some circumstances previous professional advice is disqualified from providing a reasonable excuse.

On 11 July 2018 HMRC published new revised guidance which should be consulted for further detailed information.

Potential consequences of failure to correct

Taxpayers who fail to correct their UK tax position by 30 September 2018 could face punitive penalties (unless they a reasonable excuse), including:

• A tax geared penalty of 100-200% of the tax not corrected, with a minimum of 150% for prompted disclosures.
  • For those who were aware of an issue and who ‘fail to correct’: A potential asset-based penalty of up to 10% of the value of the relevant asset where the tax at stake is over £25,000 in any tax year.
  • Potential “naming and shaming” where over £25,000 of tax per investigation is involved.
  • A potential additional penalty of 50% of the amount of the standard penalty, if assets or funds had been moved in an attempt to avoid the requirement to correct.

HMRC may also consider investigating the taxpayer with a view to prosecution where it believes there was deliberate wrongdoing.

DISGUISED REMUNERATION ARRANGEMENTS

Taxpayers with outstanding loans from disguised remuneration arrangements also need to register an interest with HMRC and provide all necessary information by 30 September 2018 in order to avoid a potential tax charge on 5 April 2019.

If there is an overseas aspect to the arrangements, failure to provide HMRC with all the required information by 30 September 2018 could also trigger high penalties under the Requirement to Correct legislation, as described above.

On 18 July 2018, HMRC published revised guidance, including an offer of up to five years for taxpayers to settle their tax liability if:

• The new loan charge would apply in the absence of a settlement.
• Expected current year taxable earnings (gross employment earnings or net self-employed profit as applicable) are less than £50,000.
• The taxpayer is not engaged in ongoing tax avoidance.

HMRC may also be able to agree payment terms, with no fixed maximum or minimum time period, for taxpayers who do not meet the automatic criteria for the five-year terms.

It is therefore very important for all taxpayers who would otherwise be subject to the new charge on 5 April 2019 to agree payment terms either under the five-year offer or on an individually negotiated basis.

Andrew Park MA FCA TEP (andrew. park@bdo.co.uk; +44 (0)20 7893 3609) is a Tax Dispute Resolution Director with BDO LLP, whose Tax Support for Professionals service provides direct and practical tax advice to the accountancy and legal professions: www.bdo.co.uk/tsp