Honesty is, of course, always the best policy, especially when declaring your income and gains for tax purposes. HMRC are bringing in tough new penalties for UK taxpayers who fail to tell them about income from abroad on which UK tax may be due.
In 2016, HMRC launched a new initiative with the purpose of bringing taxpayers who had not declared all their income or gains from outside the UK up to date. As part of this, the ‘Worldwide Disclosure Facility’ was established for taxpayers to inform HMRC about any outstanding liability for tax.
The initiative is particularly important at this time due to three key developments:
- New international information-sharing powers mean that HMRC are imminently able to access financial information from over 100 different countries. The ‘Common Reporting Standard’ provides access to data on bank accounts and investments in jurisdictions worldwide.
- ‘Requirement to Correct’ (RTC) legislation requires anyone with undeclared offshore tax liabilities to correct the position by 30 September 2018. The liability applies to non-compliance that took place before 6 April 2017, relating to income tax, inheritance tax and capital gains tax. The implication for taxpayers is that HMRC can go back to the tax year 2013/14, or 2011/12 if the failure to disclose is ‘careless’. If the avoidance tax is found to be ‘deliberate’, HMRC may be able to go back even further. There is no set procedure for making a disclosure, but a person could use the Worldwide Disclosure Facility to comply with the RTC.
- A much tougher penalty regime for failure to correct, applies from 1 October 2018. The minimum penalty is 100% of the tax owed, in addition to the outstanding tax and interest on overdue tax.
Who do the changes affect?
Individuals, partnerships, trustees or non-resident landlord companies with income or gains from abroad will all be covered by these rules.
UK residents must pay UK tax on their worldwide income and gains, and a variety of common situations can potentially lead to tax being payable in the UK. These include:
- Letting out a property abroad, such as a holiday home
- Receiving income from a share in a family business overseas
- Receiving income from an offshore bank account. ‘Offshore’ in this context includes the Channel Islands, Isle of Man and Republic of Ireland, the EU, or anywhere else in the world.
For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.