Why 2017 is the year to disclose any undeclared offshore income or gains to HMRC

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Why 2017 is the year to disclose any undeclared offshore income or gains to HMRC

17 Feb 2017

Over the last few years the tax world has become increasingly smaller, with HMRC receiving much publicity for its deals with both Switzerland and Lichtenstein, in particular. In 2017 it looks to get smaller still, as the agreement to exchange tax information between over 100 countries take effect. Our executive partner and tax investigations specialist, Robert Levy, explains.

Led by the OECD, and also known as Common Reporting Standards, this agreement will require financial institutions in the signatory countries to collect and forward information to its account holders’ home countries for taxation purposes. 54 nations will commence exchanging information in 2017, with the remainder joining in 2018. The current published list is set out at the end of this article.

Israel looks set to join the party

Israel had originally confirmed it would implement the legislation to exchange tax information in 2018. However on 1st January 2017, the Israeli foreign ministry confirmed that the exchange would instead start before the end of 2017. Whilst the enabling legislation has yet to be approved by the finance committee of the Knesset, it is assumed that these provisions will now pass into law.

Thus it is important that anyone with a potential liability to UK tax who has investment in Israel (whether bank account, insurance product, investment fund or otherwise) that is not declared to HMRC should now urgently consider what steps they should take to regularise their affairs.

HMRC have made it very clear that they will pursue anyone, to the fullest extent possible, who fails to regularise their tax affairs. Those that do not resolve their position face the potential for penalties of up to 150% for assets in Israel (200% for some other jurisdictions), ‘naming and shaming’ on the HMRC website, and either in-depth civil investigations or criminal prosecution leading to a custodial sentence.

Voluntary disclosure is the only sensible way forward for any taxpayer who has failed to disclose any income or capital gains to HMRC, who have the power to investigate 20 years previous for income and capital gains taxes, and indefinitely for Inheritance Tax.

What is voluntary disclosure and why should I do it?

On 5th September 2016, HMRC opened its Worldwide Disclosure Facility to allow taxpayers to voluntarily disclosure their tax irregularities relating to offshore assets. The benefits of a voluntary disclosure (provided it is complete) are much reduced penalties, no ‘naming and shaming’, and a much reduced risk of criminal prosecution (HMRC have confirmed they will only prosecute where they need to send a strong deterrent message, or where the conduct involved is such that only a criminal sanction is appropriate). HMRC have confirmed that the beneficial terms of this deal will be reduced from 30th September 2018 and from then on, further sanctions will be introduced.

In any event, if HMRC become aware of any irregularities by a third party before voluntary disclosure is made, then none of the beneficial terms are likely to apply.

Any taxpayer who has concerns about their tax affairs should seek specialist legal advice as soon as possible about potential disclosure. Legal advice is given under legal privilege which protects the taxpayer’s confidentiality. Kuits’ tax department has advised over 300 clients on voluntary and prompted tax disclosures. To discuss these matters further, call Robert Levy on 0161 838 7867.

Appendix

Countries signed up to exchange of information 2017:

Anguilla, Argentina, Barbados, Belgium, Bermuda, British Virgin Islands, Bulgaria, Cayman Islands, Colombia, Croatia, Curaçao, Cyprus, Czech Republic, Denmark, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, Turks and Caicos Islands, United Kingdom.

Countries signed up to exchange of information 2018:

Albania, Andorra, Antigua and Barbuda, Aruba, Australia, Austria, The Bahamas, Bahrain, Belize, Brazil, Brunei Darussalam, Canada, Chile, China, Cook Islands, Costa Rica, Dominica, Ghana, Grenada, Hong Kong (China), Indonesia, Israel, Japan, Kuwait, Lebanon, Marshall Islands, Macao (China), Malaysia, Mauritius, Monaco, Nauru, New Zealand, Panama, Qatar, Russia, Saint Kitts and Nevis, Samoa, Saint Lucia, Saint Vincent and the Grenadines, Saudi Arabia, Singapore, Sint Maarten, Switzerland, Turkey, United Arab Emirates, Uruguay, Vanuatu.

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