Taxpayers may have overseas income from a range of sources including interest from overseas bank or building society accounts, dividends and interest from overseas companies, and rent from overseas properties.

UK residents must usually pay UK tax on their worldwide income and gains. However, some taxpayers get things wrong, due to mistakes, because they do not get appropriate advice when needed, or because of the complexity of their tax affairs, HMRC said. There are also certain times in a taxpayer’s life when further complexities arise, such as marriage and divorce or death and bereavement, which can impact on offshore tax liabilities.

Since 2010, the government has recovered over £3bn from initiatives focused on offshore non-compliance. However, nearly a third of offshore assets remain untaxed.

Now the big push is to ensure that taxpayers understand their tax obligations and to try to pre-empt non-compliance by raising awareness.

HMRC is also considering ways of engaging with intermediaries and tax agents to give them more information about the type of information held by HMRC on taxpayers with offshore income.

‘We could share the data we receive on offshore assets to help agents understand the tax affairs of their clients and predict client needs. While confidentiality safeguards would need to be established, we would like to explore the viability of providing information to trusted agents in advance of tax returns being sent to HMRC,’ suggested HMRC.

As part of proposals to strengthen the relationship with agents and accountants, HMRC has proposed a number of options, including creating a dedicated Community Forum for offshore issues, improving the Worldwide Disclosure Facility (WDF) to allow agents to provide more specific information when disclosing taxpayers’ past tax liabilities and providing information to agents on their clients in advance of tax returns being sent to HMRC.

‘The complexity of offshore tax means mistakes can be made and the wide range of guidance can be difficult to navigate, particularly for those without a working knowledge of tax,’ HMRC stated.

HMRC is also considering making more use of ‘prompts’. A prompt in this context is any way in which HMRC contacts a taxpayer to suggest they consider whether tax may be due because of certain income or assets they hold or receive. This could be via a letter through the post or via a message appearing on screen while completing a self-assessment return.

Errors, including those involving offshore tax, account for 10% of the overall UK tax gap and result from mistakes made in preparing tax calculations, completing returns or in supplying other relevant information, despite the taxpayer taking reasonable care.

HMRC said: ‘Our aim is to use data earlier on in the registration and self-assessment process to help people get their offshore tax right first time. By using data in different ways and intervening earlier in the process, we can help raise taxpayers’ awareness of their offshore tax obligations and prevent common mistakes from occurring.’

The main thrust of the proposals is to communicate more effectively with taxpayers with offshore financial income as well as notifying agents about any information that HMRC holds on their clients’ offshore income or assets.

As part of the proposed communication strategy, HMRC would send reminders to taxpayers of the requirement to notify chargeability, while notices to file a tax return would include information reminding taxpayers that they have assets or income overseas.

Dawn Register, head of tax dispute resolution at BDO said: ‘HMRC is making a clear statement that there are certainly no safe havens that can enable taxpayers to hide from paying UK tax. With the Worldwide Disclosure Facility still open for voluntary disclosures and HMRC ramping up its work using CRS data, we are likely to see more tax investigations once we emerge from lockdown.

‘HMRC highlights that collection rates for domestic UK tax debt pre pandemic were around 90% whereas international tax debt collection rates were significantly lower at around 35%. In January 2020, the international tax debt was circa £1bn and this is only likely to increase as a result of the pandemic.

‘Tackling those who deliberately refuse or evade paying UK taxes, including across international borders, is an ongoing challenge for HMRC. The documents demonstrate that HMRC is open to adopting new methods of enforcement including civil sanctions and blocking access to UK markets for deliberate overseas tax evaders. Ultimately, HMRC will want to ensure that it is making further inroads into the significant tax gap and collect much needed revenue for the UK Treasury.’

The key issues outlined in the discussion paper focus on how HMRC could use data in different ways to help taxpayers get their tax right, how it could better support taxpayers with their offshore tax obligations and improving awareness among agents and intermediaries to help promote offshore tax compliance among taxpayers.

HMRC currently has access to two international tax data sharing agreements through the Common Reporting Standard (CRS) and US Foreign Account Tax Compliance Act (FATCA).

In 2019, HMRC received information on 7.6 million offshore financial accounts held by UK resident individuals, and the entities they control due to CRS data releases.

There are inevitably complexities with analysing data received from offshore sources. For example, if a taxpayer receives interest from offshore bank accounts this may be analysed by its country of origin on the self-assessment foreign pages. This analysis is needed in connection with claims for foreign tax credit relief.

Even where the interest is analysed by a country this may not identify which bank account is involved, or the amount of interest from each account. This lack of detail makes it difficult for HMRC to quickly assess and confirm whether all taxable income has been declared, especially where HMRC have data for a calendar year, so it could relate to either of two UK tax years.

The deadline for comment closes on 15 June 2021.

HMRC discussion document, Helping taxpayers get offshore tax right