Within the framework of its “No Safe Havens” tax compliance strategy, HMRC has published two discussion papers concerning aspects of the administration of “offshore” or “international” tax. Here, HMRC use the term “offshore” or “international” tax to refer to UK tax with an international element, where either the taxpayer, their assets, or both, are outside the UK.
Paper 1: helping taxpayers get offshore tax right
This document focuses on how HMRC might promote compliance by UK resident taxpayers in relation to tax arising from their offshore income and gains. It does not deal with deliberate non-compliance. HMRC invite discussion and comments on their proposed strategy which can be separated into three parts as follows.
More efficient use of data
HMRC now receive increasing amounts of data relating to the offshore income and gains of UK resident taxpayers under various data sharing agreements, such as the Common Reporting Standard and the Foreign Account Tax Compliance Act. HMRC propose that this data could be used to help taxpayers getting their offshore tax right at the tax return stage. The methods suggested by HMRC include using the data:
- to remind taxpayers with offshore income and gains of the requirement to notify chargeability;
- to remind taxpayers (when HMRC send them a notice to file a tax return) that they have assets or income/gains abroad; and
- to create online prompts for taxpayers when they are completing their tax returns, to remind them that HMRC have data on their offshore income and gains.
HMRC are also inviting views on what additional information (e.g. details of the relevant overseas bank accounts) taxpayers could be required to provide to help HMRC match up the data they receive. This is proposed in order to address:
- the mismatch between the period for data which HMRC receives (calendar year ending 31 December) and the period covered by UK personal tax returns (tax year ending on 5 April); and
- the fact that tax returns contain aggregate figures from which it is not usually clear which offshore income or gains have been declared.
Raising awareness and understanding
HMRC’s own internal research and analysis found that taxpayer awareness of offshore tax obligations is low. HMRC consider there is more to be done to raise awareness and understanding among taxpayers that tax could be due on offshore assets and income. In HMRC’s view, this is particularly true since it has become more common to receive offshore income and gains, and to own offshore assets.
HMRC consider the potential areas on which to focus communication efforts include:
- rethinking the terminology used in connection with international tax matters to reduce confusion;
- highlighting common mistakes and high risk areas;
- targeted awareness raising by contacting taxpayers in certain jurisdictions and sectors;
- developing an offshore assets “one stop shop” for offshore guidance and improving guidance on completing the foreign pages of the self-assessment tax return;
- working with intermediaries to identify common errors and opportunities for joint communications and actions; and
- increasing awareness of anti-avoidance legislation.
HMRC are also keen to improve communication with non-UK resident taxpayers about their UK tax obligations and are seeking views on the best way to make sure that the relevant changes in tax legislation that impact on those taxpayers can reach them.
Engaging with advisers, agents and other intermediaries including employers, financial institutions and online platforms
HMRC are considering the viability of providing information gathered on offshore income and gains with agents in advance of tax returns being submitted to HMRC, so that agents can better understand their clients’ tax affairs and provide suitable advice. HMRC are also considering potential ways of increasing engagement with agents, for example, through a dedicated Community Forum for Offshore Issues, and by improving the Worldwide Disclosure Facility to allow agents to provide more specific information when disclosing their clients’ past tax liabilities.
In respect of financial institutions, HMRC are exploring the possibilities of sector participants providing further support to their customers by encouraging best practice, and by providing guidance and education.
Paper 2: preventing and collecting international tax debts
HMRC are seeking views from interested parties on how best to prevent international tax debt and the possible ways to improve collection when debts arise. This discussion document deals with HMRC’s civil powers only, and does not touch on the powers that HMRC have to tackle criminal tax evasion.
HMRC have a high success rate in collecting domestic UK tax debt, with the pre-pandemic collection rates being about 90%. The pre-pandemic success rates for collecting international tax debt were much lower, at about 35%. “International tax debt” in this discussion document refers to a debt which has arisen because of the non-payment of UK tax, where either the taxpayer, their assets, or both, are outside of the UK. This therefore includes:
- UK tax resident individuals with overseas assets that generate a UK tax liability;
- individuals based overseas with a UK source tax liability; and
- UK tax resident individuals who have moved overseas without paying the tax owed.
Specifically, HMRC aim to gather views on:
- the causes of international tax debt. HMRC have identified a number of causes, including, on the more innocent spectrum, errors and oversight, to the more deliberate action to conceal the existence of foreign assets. Interested parties are invited to share their experience of the circumstances in which international tax debts have arisen and how those debts were dealt with.
- the possible approaches that HMRC might take to tackle the causes of tax debts. For example:
- by using data collected under various international arrangement;
- by understanding what guidance and formats are most helpful to reducing international tax debt and what improvements to existing guidance would be helpful;
- by improving the way guidance and information are distributed and made available; and
- by making the payment of tax easier.
- how to improve the collection of international tax debt. In particular, HMRC invite views on:
- how to improve communications with international debtors. HMRC’s traditional way of communication by letter poses challenges when communicating with taxpayers who are based outside the UK. HMRC are keeping under review their approach to using email communication with customers, i.e. only with specific prior consent from the taxpayer, and invite suggestions as to how they may improve their communications to collect international tax debt more effectively;
- how to improve payment processes. Currently international bank transfers and payment of taxes over the phone or online are accepted. HMRC want to understand the specific challenges faced by overseas taxpayers when trying to pay debts and how the payment processes can be improved or expanded; and
- how to collect international tax debt if the taxpayer refuses to cooperate. In such cases HMRC would need to engage a tax authority in another jurisdiction to assist in the collection process. This raises various challenges of its own, including high administrative costs. HMRC are inviting views on how to improve international cooperation and to increase the rates of collection in other jurisdictions. HMRC would also like to explore other approaches, such as penalties and sanctions, which can be applied to encourage the repayment of international tax debt.
- Further ideas to prevent and collect international tax debt. For example, HMRC would like to explore the possibility of inhibiting access to UK markets to overseas businesses who deliberately evade UK tax, which in their view could be particularly helpful in preventing and collecting international tax debt associated with VAT.
Both discussion papers are open for comments until 15 June 2021.