Taxpayers have been warned they cannot rely on past tax advice as a ‘reasonable excuse’ for non-compliance with the new offshore tax regime, as the expert that gave that advice may now be deemed an interested party.
The warning from Mark Taylor, head of tax investigations and dispute resolution at advisory and chartered accountancy firm Buzzacott, comes as HM Revenue & Customs moved from a ‘requirement to correct’ to a ‘failure to correct’ (FTC) regime on 1 October.
It now carries fines of up to 200% of the tax liability.
Where the tax involved exceeds £25,000 ($32,600, €28,100) in any tax year, and the taxpayer knew there was offshore non-compliance that should have been disclosed, there is also a penalty of up to 10% of the value of assets connected to the FTC.
It is not a hammer to crack a nut, but a huge mallet. If you have offshore non-compliance you are going to be adding a few zeros to the cheque.
Taylor said that it may just be possible that front-line compliance officers might show some discretion if someone was to report now, given that the whole idea is to “make people who are non-compliant become compliant”.
But, he added, you would need to move “really, really quickly” and leaving it any longer would bring a definite ‘No’.
He said that anyone who is uncertain needs to get expert advice swiftly, including on sources of UK income that have moved offshore subsequently.
“When you look at the scope of FTC and what it catches, there are certain areas that are technically complicated by their nature,” said Taylor.
“You wouldn’t expect an ordinary person to understand it. If you have got any form of offshore assets or been in receipt of offshore income, you should seek advice. It is not just offshore income and offshore assets, it is also UK income that has gone offshore as well.”
Interested party
He said that HMRC has thought this through very well, hence its move to describe tax advice that may have been associated with setting up an offshore arrangement as involving an interested party.
“If you have gone past the deadline, you are potentially caught by failure to correct. The only way out is reasonable excuse, but that reasonable excuse has to consider whether the person that gave advice in the first place is independent.
“In the past, you could say: ‘I took advice from a specialised person. I provided them with all the facts available at the time and I followed that advice through’.
“Now HMRC says the person that gave that advice is an ‘interested person’. You can’t rely on advice from an interested person as an excuse. Indeed, the only way you can rely on that advice is to get it looked at again – a health check by a qualified person, but who is not an interested person.
“If you have missed the window, have you got a reasonable excuse? It you haven’t because of disqualified advice, then you need to see if you can get further advice that makes it qualified.”
Painful penalties
Taylor added that the shift to FTC will mean things get very painful from now on.
“Last week, if I went to HMRC with you, I could have got you a 0% penalty. Going forward, if we go to HMRC the best I can get you is 100%. If they come to us, the best I can get you is 150% and the starting position is 200%.
“The only way I can get that down is enhancing disclosure through the ‘telling, helping, giving’ process. At least, if you are exposed to draconian penalties, you would not be making it worse by enhancing your disclosure.”
He said the change is likely to affect around 4% of taxpayers and, indeed, the other 96% may welcome it.
“The clue is in the name – HM Revenue & Customs. The penalties are very severe. You might say they didn’t do enough to publicise it, but they will say this 4% should at least have been aware that they needed their affairs and structures looked at.
“HMRC think they will get bountiful information under the common reporting standard. They think this will identify offshore tax evaders. It is not a hammer to crack a nut, but a huge mallet. If you have offshore non-compliance you are going to be adding a few zeros to the cheque.
“Without a doubt, HMRC have offered carrots for people to come to them in the past. Now they don’t believe they need to. They think with the common reporting standard and a 100-plus jurisdictions involved, that they don’t need to offer carrots anymore.”
