Offshore Brits forced to pay up £560m in unpaid tax

Concerted action to target Brits living offshore who are not up to date with their taxes has nearly doubled the tax yield in two years as HMRC takes advantage of new powers to identify and collect untaxed offshore assets

HMRC has collected £560m in unpaid taxes in the last year alone, up over £200m in two years for the 2016/17 figure of £325m, according to data through a Freedom of Information request obtained by Access Financial, a payroll and contractor accountancy firm.

At the same time, it has become harder for people to hide assets offshore with over 800 investigations launched in the last year into offshore interests as HMRC’s Offshore, Corporate and Wealthy unit ramps up its activities.

The elite Offshore, Corporate and Wealthy unit, which sits within the Fraud Investigation Service at HMRC and was set up in the wake of the Panama Papers scandal, has increased its tax haul by 72% over the past two years.

The new team, which targets high net worth individuals and businesses with undeclared offshore interests, started 827 investigations in 2018/19, representing a yield of £677,146 per taxpayer.

This is a significant increase on the yield per taxpayer in 2016/17, when 842 investigations were commenced, resulting in £325m of additional tax being identified, a yield of £385,986 per enquiry.

Common reporting standards through the automatic exchange of information effective since September 2017 mean that tax authorities now exchange data on taxpayers resident in multiple jurisdictions meaning that it is much harder to hide offshore assets. HMRC has reaping the rewards from information received on bank accounts since 2016 from offshore financial centres, including the Channel Islands, Bermuda and the British Virgin Islands.

Failure to pay results in tough penalties for non-compliance with fines up to 200% of tax owed if assets are held outside the UK.

Kevin Austin, chief executive of Access Financial, said: ‘HMRC’s new offshore unit is becoming much better at focusing its resources on the biggest tax threats.

‘It is staffed by highly experienced lawyers and accountants and is armed with a vast amount of data and sweeping powers. It has already increased the amount it is netting from investigations by more than two thirds in just two years and this is likely to be a foretaste of much more to come.

‘Tax authorities around the world are acting in a more joined-up way, which makes it increasingly important that taxpayers ensure their tax affairs are in order. Gone are the days when taxpayers who frequently worked or owned assets in different countries were able to slip between the cracks.”

It has also become easier for HMRC to prosecute taxpayers for offshore tax evasion under the Criminal Finances Act 2017. A new ‘strict liability offence’ came into effect in October 2018. This made it a criminal offence to fail to declare offshore income of more than £25,000 and means that HMRC does not have to prove intent to evade tax, making it much easier to secure a conviction.

According to Access Financial, British taxpayers utilising offshore tax solutions, many of which promise high levels of take-home pay, are facing ever-greater risks as information exchange between tax authorities becomes more systematic.

Austin says: ‘Despite numerous crackdowns, offshore tax avoidance schemes are still being touted and these can be tempting to expats operating in continental European markets, where the tax burden can be significantly higher than the UK.

‘The promotors of these schemes often claim to have HMRC’s approval, but HMRC never endorses schemes, making any such claims fraudulent. If HMRC deems a scheme to be non-compliant, it can demand backdated tax, penalties and interest. HMRC now also has the power to compel taxpayers to pay their potential tax liabilities up front, instead of having to chase them through the courts.’

Sara White

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