International tax headaches – how to help taxpayers get offshore tax right
Susan Cattell reviews HMRC suggestions for how it could help taxpayers to get offshore tax right – placing the emphasis on preventing non-compliance happening, rather than responding to it after the event.
HMRC’s approach to offshore tax compliance
By 30 September 2018 over 100 jurisdictions had committed to exchange information under the CRS – and in 2018 HMRC received information about the offshore financial interests of around 3 million UK resident individuals (or entities controlled by them).
Unsurprisingly, when HMRC first embarked on its ‘No Safe Havens’ strategy for tackling offshore tax compliance in 2013, the emphasis was very much on evasion. However, the strategy has evolved since then and the 2019 edition notes that it covers a range of behaviours from simple mistakes to avoidance and evasion. One of three key aims mentioned in 2019 was to “assist compliance – helping customers get offshore tax right first time”. This is important for taxpayers who want to comply but struggle with the complexity of offshore tax – the penalties for getting it wrong can be very expensive.
The discussion document
On ‘Tax Day’ 2021 HMRC published a discussion document ‘Helping taxpayers get offshore tax right’. This is focused on unintentional non-compliance; the introduction notes that this can be caused by a range of factors, including:
- Not being aware of offshore tax obligations.
- Guidance and communications relating to ‘offshore income’ not being relevant or clear.
- Reliance on anecdotal evidence or out-of-date advice.
- Not asking for help and support until the tax return is due.
Whilst it will remain the responsibility of individuals to get their tax right, HMRC is considering how it can help them to do so and is looking for input in three areas:
- How HMRC could use data in different ways to help taxpayers get their tax right.
- How HMRC could better support taxpayers with their offshore tax obligations.
- How HMRC could work with agents and intermediaries to help promote offshore tax compliance amongst taxpayers.
ICAS will be responding to the discussion document and attending some of the workshops HMRC is holding to discuss its suggestions. We welcome Members’ views on any of the ideas in the discussion paper.
Using data to promote offshore tax compliance
HMRC receives increasing amounts of offshore data every year, particularly under the CRS and the Foreign Account Tax Compliance Act (FATCA). Rather than only using this data to find non-compliance after the event, HMRC wants to use the data earlier in the registration and self assessment process to try to increase awareness of offshore tax obligations and prevent common errors.
Possible approaches (some of which are explored in more detail in the later sections of the paper) include using the data to:
- Remind taxpayers of the requirement to notify chargeability.
- Remind taxpayers when HMRC sends them a notice to file a tax return that they have assets or income overseas.
- Remind taxpayers when they are completing their tax returns, using online prompts, that HMRC collects data which may detail their offshore assets. HMRC might also remind taxpayers to declare income and gains from the assets it knows they hold in particular countries.
- Tell agents, who have been authorised by their clients to receive information from HMRC, about the information it holds on their clients’ offshore income or assets.
This section of the paper goes on to note that HMRC finds it difficult to use the data it receives to its full potential because it can be difficult to match that data to the entries on individual tax returns. Much of the offshore data received by HMRC relates to calendar years, rather than the UK tax year. There is also often an aggregated figure on the tax return, so it is difficult for HMRC to see exactly what has been declared.
HMRC suggests that taxpayers should be required to include a breakdown of overseas income on the self assessment foreign pages of the tax return, detailing which bank account etc the income came from. This would help HMRC to match the information with the CRS data it receives, removing the need to contact taxpayers about income and gains which have already been included in the return. It would also help to identify taxpayers who might need more help.
HMRC believes that this would not present problems for taxpayers and agents as they should already have the data. ICAS would be interested in Members’ views on whether this would be an onerous requirement – and whether there could be other concerns (for example, privacy issues).
Making it easier for taxpayers
HMRC recognises that with increasing globalisation it is becoming more common for individuals to receive offshore income and to own offshore assets; it is therefore important for HMRC to make it easy for taxpayers to pay the relevant tax. This section of the paper looks at how HMRC could support taxpayers to be aware of and understand their obligations and how it could help to remove opportunities for error.
HMRC research has shown that taxpayer awareness of offshore tax obligations is low. The terminology used in connection with international tax matters can also be confusing and some taxpayers have difficulty relating to the terms used and think that HMRC communications regarding offshore are targeted purely at wealthy taxpayers with complex arrangements (and within self assessment). HMRC would like views on what terminology would help a broader range of taxpayers associate themselves more accurately with their offshore tax obligations.
Public communication campaigns can have a positive impact – HMRC mentions the 2018 campaign publicising the requirement to correct legislation, as an example of how a targeted and meaningful campaign can help raise taxpayer awareness. It is keen to obtain input on areas where taxpayers most frequently need help with their offshore affairs, which could be the focus of communication efforts. It has already identified some likely areas and would welcome comments on whether these are the right ones, and on other areas which could usefully be prioritised for HMRC communications:
- the need to declare income and gains from property or pensions outside the UK,
- the remittance basis rules,
- the need to consider the tax implications of using offshore trusts, including the Inheritance Tax 10-year charge.
Possible approaches to public communications, on which views are also invited, include:
- Highlighting common mistakes in high risk areas for offshore tax.
- Targeted awareness raising by contacting taxpayers in certain jurisdictions, and sectors, where mistakes are more common.
- HMRC doing more to debunk myths that exist about what is and is not legal.
- Developing an offshore assets ‘one stop shop’ for offshore guidance.
- Improving the guidance on completing the foreign pages of the self-assessment tax return.
- Working with agents and other intermediaries to identify common errors, and opportunities for joint communications and action.
- Increasing awareness of the scope and effectiveness of anti-avoidance legislation for both individuals and corporates, to deter the use of avoidance schemes.
This section also discusses the possibility of digital prompts. HMRC has trialled some of these already, for example, a prompt on foreign tax credit relief in the income tax self assessment return, which reduced errors. It reminded taxpayers to check they had entered the correct amount and selected the correct percentage rate.
HMRC wants to use more digital prompts for offshore tax, including targeted prompts, using the CRS or FATCA data, at different stages of the tax return process. Several possibilities are mentioned:
- Taxpayers where HMRC holds CRS data could be automatically pre-selected to complete the foreign pages of the tax return.
- Targeted prompts to remind taxpayers to declare income and gains as they complete the foreign pages of the tax returns, for example ‘please don’t forget to declare any income and gains from assets you hold in country X’.
- Prompts through the Personal Tax Account - reminding taxpayers to register for self assessment and gather the right information about their offshore assets in good time.
Working with intermediaries to ensure offshore tax compliance
Finally, HMRC recognises the value of good tax advisers in helping their clients to get their tax affairs right and wants to explore issues that face agents when dealing with clients who have offshore assets.
The paper notes that clients, mistakenly or otherwise, sometimes fail to tell their agent about offshore assets, preventing the agent dealing properly with the tax return (or money laundering obligations). To help to address this issue, HMRC would like to explore the viability of providing offshore data it holds to trusted agents in advance of tax returns being submitted – subject to confidentiality safeguards.
In addition to sharing data with tax agents, there are other suggestions for giving agents the opportunity for increased engagement with HMRC on the more complex aspects of their clients’ offshore affairs. These could include:
- A dedicated Community Forum for offshore issues to supplement the forums HMRC already makes available on other issues.
- Improving the Worldwide Disclosure Facility (WDF) to allow agents to provide more specific information when disclosing taxpayers’ past tax liabilities.
The paper also mentions the possibility of financial intermediaries providing further support to their customers – for example, by encouraging best practice, or by providing guidance and education.
ICAS would like your views
ICAS will be responding to the discussion paper and welcomes Members’ views on any of the suggestions – or anything else which might help taxpayers and agents. Please send us your feedback and comments by emailing email@example.com.