Donald Reid Group

Unpaid taxes arising from overseas assets. September deadline rapidly approaching

HMRC has provided an opportunity for everyone to make a disclosure to HMRC on any unpaid taxes arising from overseas assets before the end of September 2018. The new penalties will start at 200% of the underpaid tax but may be mitigated down to 100% of the tax with full cooperation and disclosure.

The opportunity for disclosure to HMRC on any unpaid taxes arising from overseas assets will only exist until September 2018. Stringent new penalties will apply from 1st October to any errors in UK tax returns relating to offshore matters. These will be charged under the new statutory requirement to correct enacted in last year’s second Finance Act and applies to income tax, capital gains tax and inheritance tax.

The new penalties will start at 200% of the underpaid tax but may be mitigated down to 100% of the tax with full cooperation and disclosure. There is no attention paid to how the error arose - whether it is by human error, careless behaviour or tax fraud.  

 

Act now

You should address sooner rather than later as HMRC will also be able to use the data supplied under the Common Reporting Standard, now embraced by 100 countries worldwide, whereby offshore institutions such as banks and trust companies automatically supply information where customers have a UK address.

The following four examples show how the penalties might be applied.

Example one
An individual has an undisclosed tax liability of £100,000 on an asset of £500,000.There is unprompted disclosure to HMRC before 30 September 2018 for six years and the maximum possible mitigation is given for the careless behaviour:

Tax   £100,000  
Interest  £10,500  
Penalty (10%)  £10,000  
Total due  £120,500  


Example two

As above, but deliberate behaviour for 10 years with tax due of £250,000 but unprompted disclosure:

Tax   £250,000  
Interest   £42,000  
Penalty (30%)   £75,000  
Total due   £367,000  


Example three

Almost the worst-case scenario, with no mitigations and the deadline for disclosure passed:

Tax   £250,000  
Interest  £42,000  
Penalty (200%)   £500,000  
Total due  £792,000  


Example four
This is the worst case example. As above, but with deliberate moving between jurisdictions to evade tax:

Tax   £250,000  
Interest  £42,000  
Penalty (300%)   £750,000  
Total due   £1,042,000  


If you think that it might be a good time for an independent tax review, so that matters can be put right before the new legislation comes into force, please do get in touch with the tax team at DRG Chartered Accountants. We would be delighted to hear from you.

 

DISCLAIMER: This information is for guidance only, and professional advice should be obtained before acting on any information contained herein. We will not accept any responsibility for loss to any person as a result of action taken or refrained from in consequence of the contents of this publication.


 

 

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