Information flow between UK and Polish tax offices

Are you wondering how efficient the exchange of information about you is between the Polish Tax Office and HMRC? In a word: very efficient. However, it's better to know more about this.

For tax authorities, it's no problem to track down a non-compliant individual and impose a penalty for failing to meet tax obligations. This is all thanks to the Common Reporting Standards (CRS) agreement signed between the UK and over a hundred other countries. The UK and Poland signed this agreement in 2017. The list of participating countries is available on the government website.

What is CRS?

Common Reporting Standards (CRS) is an agreement concerning the automatic exchange of information between financial institutions.

The actual mechanism involves financial institutions collecting information about their clients and transmitting it to tax authorities. These authorities, in turn, communicate and exchange information with each other. CRS allows HMRC to scrutinize taxpayers more easily than ever before. This, by the way, doesn't only apply to HMRC; the Polish tax office also has the same rights.

If you own an apartment in Poland and rent it out, or you own shares and cashed them in without declaring capital gains tax to HMRC, or you have other earnings abroad that you haven't reported on your tax return, then there's a high risk that the Polish or British tax office will register this.
It only takes one official to notice you.

HMRC targets overseas income

As early as March, even before the Covid-19 pandemic, which further widened the budget deficit, HMRC sent grey envelopes with warnings to thousands of taxpayers whom it suspected of hiding overseas income based on information flows. Such conduct could lead to the initiation of criminal proceedings.

HMRC clarifies that these warnings are sent based on a thorough analysis of data received through CRS, not merely on suspicion.

A report last year stated that since 2010, HMRC has collected over £2.9bn (!) solely from undeclared foreign income, from both large companies and private taxpayers – we read in Financial Times.

We wrote about how to make a Tax Disclosure before HMRC catches up with you in a previous article.

How to resolve tax arrears on overseas income?

HMRC offers taxpayers the opportunity to correct their mistake, often caused by a lack of awareness about the need to settle with the tax office, and to amend their undeclared income.
For this purpose, the "Requirement to Correct" (RTC) was introduced several years ago. The RTC required taxpayers to declare all undeclared "offshore" (i.e., foreign) income for the period up to the end of the 2016/17 tax year, no later than September 30, 2018. If you failed to do so, all such income will be subject to a penalty of up to 100% of the unpaid tax.

For the period from April 2017, if you make a timely Disclosure, you will most likely pay a low penalty or none at all (expected penalties up to 30%). For the earlier period, the minimum penalty is 100% of the unpaid tax. However, it is better to "admit" to undeclared income yourself than to give HMRC a reason to audit your tax history for further periods.

HMRC publishes "blacklists" containing personal data and the amounts of fraud committed by offenders. Polish companies and names are also found there.

What foreign income needs to be reported to HMRC?

• income from work abroad;
• income from foreign investments, e.g., dividends and interest from savings;
• income from renting property abroad;
• income from pensions abroad.

We previously mentioned Zofia, who lives in the UK and works full-time, and also rents out an apartment in Poland, where she pays all due taxes to the Polish Tax Office. Due to lack of knowledge, she had never reported this income to HMRC before. We helped her with a Tax Disclosure and reporting the income from Poland. More on this topic here.‍

Zofia pays taxes for her employment income via her payslip. Income from renting an apartment abroad should be included in her annual tax return, and the appropriate income tax should be settled.

In another article, we described the example of Alicja, who sold her apartment in Poland and intends to stay in Edinburgh permanently.
Here she has her bank account and raises her daughter, so her centre of vital interests is in the UK; therefore, she must settle Capital Gains Tax. Alicja previously rented out an apartment, for which she filed taxes in the UK, and her case qualified for several tax reliefs. After tax optimization, the liabilities were small.

Such transactions are very easy for Tax Offices to detect, and as seen in Alicja's example, hiding income may not be worth the trouble. Professional tax advice can significantly reduce your taxes in a completely legal way.

You can read more about TaxOne clients' problems with HMRC in my book "Low Taxes - Legally".

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