FB 2018-19: HMRC to double offshore investigation time limits

The government is planning to more than double the retrospective time limit during which HMRC can investigate non-payment of income, capital gains tax (CGT) and inheritance tax (IHT) from offshore accounts

The move will see the time limits for non-deliberate non-compliance increased to 12 years and is part of the No Safe Havens strategy by the UK tax authorities to crack down on the offshore tax gap. Existing time limits are four years, or six where the loss of tax is due to carelessness, after the end of the year of assessment (or date of the chargeable transfer) to which it relates.

The time limit for deliberate offshore tax avoidance will remain unchanged at 20 years, as announced as part of draft legislation for the Finance Bill 2018-19.

Chancellor Philip Hammond proposed the extension in his 2017 Budget and the planned legislation, announced today, comes in the wake of a consultation issued in February and concluded in May. After considering responses, the government abandoned plans to include corporation tax liabilities in retrospective investigations, but proceeded with the proposals in all other respects.

Among the other objections raised were concerns that tax investigations would be unnecessarily long, that pensioners and migrants could be adversely impacted and the cost implications of having to keep tax records for 12 years.

The new law to extend the investigation period will be introduced in the Finance Bill 2018-19 to amend the Taxes Management Act 1970 through the insertion of a new section 36A, and the Inheritance Tax Act 1984 will be amended through the insertion of a new section 240B.

HMRC said in a statement: ‘These amendments will have effect in relation to Income Tax and Capital Gains Tax assessments from 2013 to 2014 in cases where the loss of tax is brought about carelessly, and from 2015 to 2016, and subsequent years, for other cases (where not already subject to the 20 year time limit). They will apply for Inheritance Tax to chargeable transfers taking place on or after 1 April 2013 where the loss of tax is brought about carelessly, and 1 April 2015 for other cases not subject to a longer time limit’.

The draft legislation has been amended from the original consultation approach to include a safeguard in instances where information is automatically exchanged under global tax authority agreements through the Common Reporting Standard.

Richard Morley, tax dispute resolution partner at BDO said: ‘Currently a ‘careless’ error can only be assessed going back six years, meaning 2012/13 would be the earliest year HMRC can collect tax. The phasing in of the new time limits regime starts from 6 April 2019.

‘Importantly, a welcome addition has been incorporated following the consultation process. A safeguard exists which means that if information is automatically exchanged, and HMRC could reasonably have been expected to issue an assessment on the back of this where there was an indication of undeclared income, then the usual (four or six years) time limits are only available to HMRC and not the extended time limits.

‘For example, HMRC cannot have up to 12 years to assess any undeclared income arising from non-deliberate behaviour if the information relating to the undeclared income was correctly reported under the Common Reporting Standard (CRS). The new provisions therefore, appear to be aimed at either unreportable income or gains (outside of CRS for example) or undeclared income or gains from assets that were previously moved out of reporting jurisdictions.’

The Bill will be submitted for parliamentary approval in the autumn and will be on the statute books by the end of the calendar year if it receives Royal Assent.

The policy paper: Extension of offshore time limits for Income Tax, Capital Gains Tax and Inheritance Tax is here. 

Extension of Offshore Time Limits, Summary of Responses to the public consultation is here. 

Report by Rob Munro

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