HMRC tracks down hidden foreign income
Tax authorities are sending thousands of letters warning against making false declarations. UK tax authorities have redoubled their efforts to uncover false tax declarations where residents have concealed offshore income.
HMRC sends letters to individuals with offshore income
Thousands of taxpayers received letters last month urging them to verify their offshore assets and bank accounts, while also warning of criminal liability for making false statements. These letters, similar to those sent by HM Revenue & Customs last year, aim to help close a significant gap in the UK budget, estimated at 5.6% of all tax liabilities, amounting to £35 billion.
Although this sum includes taxes lost in many areas, for example through undeclared cash in the construction sector, officials are trying to use the tightening of international regulations to mitigate the loss, specifically by detecting as many tax declarations with undeclared offshore income as possible.
HMRC is increasingly using data exchanged by approximately 100 tax authorities under the Common Reporting Standard, an OECD agreement from 2014 designed to assist in offshore tax investigations.
What HMRC letters contain
An example letter from HMRC states: We have information indicating that you hold interests in offshore property or have received offshore income, on which you may need to pay UK tax. We know this through UK tax information exchange agreements with other countries.
"No" to "Tax Havens"
In its annual report from May 2019, HMRC stated that since 2010, it had collected £2.9 billion by tackling offshore tax non-compliance, both individual and corporate.
HMRC's Tactics and Their Effectiveness
Most tax professionals support the idea of using CRS information, but some question the way HMRC conducts its operations.
Nimesh Shah, a partner at accounting firm Blick Rothenberg, said that HMRC appears to be writing to taxpayers whose names have appeared on CRS lists without first checking whether they have made appropriate disclosures in their standard UK tax returns.
Shah added that at his firm, 99% of clients who received these letters last year had nothing further to disclose. Two other tax advisors also admitted that they encountered few cases where additional clarification was required.
HMRC denied this suggestion - "We do not send our letters speculatively. All our work is based on specific analysis, so if clients received a letter, our data indicated that they held offshore assets or income that had clearly not been declared..
What are the consequences of ignoring a letter from HMRC?
Accountants are particularly concerned that taxpayers are asked to sign an attached "certificate of tax position," in which they declare that they have either already made a full disclosure or that they will make a disclosure of "UK tax irregularities." It is warned that making a false statement is a criminal offense.
Advisors claim that the certificate has no legal basis, even if it is written in a legalistic manner. Dawn Register, a tax partner at BDO, said: "There is no legal obligation to respond, but I personally would not advise anyone to ignore it".
The Chartered Institute of Taxation, a professional body for accountants, stated last year that individuals should consider "very carefully" signing a certificate, given the "serious consequences" of making a false declaration. The Institute recommended responding to HMRC in the form of a letter, but without using the certificate.
CRS data provides officials with vast amounts of new information – in 2018, the last estimated year, HMRC received data on 5.67 million accounts, compared to 1.63 million in 2017. The department said: "This is business, so there will likely be even more letters next year."
If such a letter has also landed in your mailbox - contact us.
