Alongside the Spring Statement were two new publications. The first was entitled “Tackling tax avoidance, evasion, and non-compliance”, however, the second one entitled “No Safe Havens 2019” is more relevant to foreign domiciliaries (or “non-doms”), as it is an update of the HM Revenue & Customs (“HMRC”) strategy for offshore tax compliance.
“No Safe Havens 2019”, as the title suggests, intends to scare UK resident taxpayers who have financial connections to tax havens. In a previous campaign, HMRC blithely declared, “If you have declared all your income you have nothing to fear”. Nevertheless, in reality, there is a considerable cost, both emotionally and in professional fees, trying to prove that you do not owe HMRC any money.
On the same day as the Spring Statement 2019, the Inspectors of HMRC flexed their collective muscles by declaring that they have received financial data from around the world under the Common Reporting Standard. In 2018, HMRC received information about the offshore financial interests of around 3 million UK resident individuals, or entities they control. In addition, HMRC received 5.67 million records of UK taxpayers’ offshore bank accounts in 2018.
HMRC say, “We have begun using this data to detect possible non-compliance”, using their super-computer called Connect, which is capable of processing 22 billion lines of data and can correlate the data within a taxpayer’s return and property information together with financial data, including the offshore account information. Each year Connect finds 500,000 cases (onshore and offshore) to investigate.
The majority of these offshore bank accounts will be held by the 10 million foreign born persons living in the UK, or Brits who have a foreign bank account because they have property abroad.
There is a legitimate tax planning reason for wealthy non-doms to keep their wealth offshore and claim the remittance basis. But HMRC know that taxpayers make “common mistakes”, for example, omitting foreign income taxed abroad in a tax return (unless the remittance basis is claimed), or omitting untaxed foreign income remitted to the UK in a tax return when a wrong debit card is used. Sometimes the taxpayer takes and follows professional tax advice, but fails to get the advice updated when there is a change in law (which happens now with alarming regularity). At the other end of the spectrum are people who use offshore bank accounts to hide income to evade tax illegally.
In the past HMRC tended to focus on tax evasion, but now their net is being widened to include mistakes, tax avoidance (where tax rules are exploited to give an economic consequence unintended by Parliament), as well as tax evasion.
This change in approach, together with the new extended time limits on investigations, relating to Offshore accounts, which can now go back 12 years and tougher penalties; means that there are considerable tax collecting opportunities for HMRC. In practice, this means that wealthy non-doms can expect to be contacted by HMRC.
HMRC say they have written already to tens of thousands of taxpayers informally, to ask them to confirm that they have declared everything they ought. Alternatively, HMRC can chose to use their formal powers to launch either a civil or a criminal investigation.
Non-doms are advised to make sure that they have declared everything correctly and to refresh any old tax advice, just in case the rules or the interpretation of the rules have changed.