06/11/23

UK: No Safe Havens - HMRC’s Increasing Focus On Offshore Matters

As published on: wealthbriefing.com, Monday 6 November, 2023.

As the authors of this article argue, those involved in offshore bank accounts and investments must be particularly careful to avoid mistakes in order to avoid falling foul of the UK revenue authorities. They explain the state of play, and the steps that people should consider.

The following article comes from Haysmacintyre, the chartered accountancy firm. The authors are Danielle Ford and Riocard Hoye, senior manager. The editors are pleased to share this content; the usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com

The stakes have never been higher for those with an interest in offshore bank accounts and investments who make a mistake; HMRC holds more information than ever before and has access to penalties with serious bite.

HMRC’s nudge letter campaign is going nowhere
HMRC continues to widen its nudge letter campaign with new communications sent to individuals with offshore assets, income or gains. Nudge letters are HMRC's mass communications sent to taxpayers which it has identified concerning a specific tax risk. It is part of HMRC’s ‘one to many’ strategy – the letters are a cost-effective way for HMRC to communicate with many taxpayers at once compared with traditional methods such as an enquiry.

HMRC's nudge letters remind taxpayers of their legal obligation to review their tax affairs and correct errors or omissions. It is HMRC's way of nudging taxpayers who they believe have paid insufficient tax, without opening formal enquires.

Nudge letters account for billions of pounds of HMRC revenue. In its 2022/23 annual report and accounts, HMRC reported that £5.3 billion was attributed to “upstream operational yield,” a category which contains nudge campaigns and educational projects. As HMRC is generating these levels of revenue by expending a relatively low level of resource, it is clear that the “nudge” approach is here to stay.

What is offshore income or gains?
Offshore income or gains can arise from a multitude of sources within territories outside of the UK, including interest from overseas accounts, dividends from overseas companies, rental income from overseas properties, and wages or benefits earned.

The default position for UK taxpayers, unless claimed otherwise, is the “arising basis” of taxation. This means that all worldwide income and gains must be reported to HMRC, even if this has already been reported in the foreign jurisdiction and/or had tax withheld at source.

Traditionally, HMRC had limited visibility in relation to offshore matters, meaning that offshore structures and bank accounts were often used to avoid tax. Now, under the Common Reporting Standard (CRS), financial institutions from around the world must report to HMRC details of UK resident individual’s income and gains.

This means that HMRC is in possession of more information than ever before, which is increasing in detail and accuracy. It is because of this huge volume of information that HMRC holds that nudge letters are necessary; HMRC would not have the resource to open full enquiries into even half of the taxpayers it identifies as a tax risk.

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HMRC UK Regulation