Offshore bank accounts
Automatic information exchange
HMRC has direct access to a wide array of information sources, both in the UK and world-wide. The international Common Reporting Standard, where countries and financial institutions automatically exchange information about taxpayers’ income and assets, is now well established: in 2018 alone HM Revenue & Customs received 5.67 million records on UK taxpayers’ offshore financial accounts.
HMRC uses its “Connect” data analysis programme to automatically risk review this vast trove against other information it holds (including salaries, UK bank accounts & loans, properties, car ownership etc). HMRC’s normal approach is then to issue ‘nudge’ letters to those taxpayers flagged by Connect, suggesting that they ‘reconsider’ the tax returns they have submitted.
HMRC has also been given more time to check all the data it is receiving from overseas: Finance Act 2019 inserted a new section into the Taxes Management Act, which introduced a new 12 year assessment time limit for offshore issues. There is also now a punitive ‘Failure to Correct’ penalty regime which may arise when an offshore related tax matter which should have been addressed before 2018 was not put right, as well as the potential for a range of other offshore related tax penalties.
These targeted measures combined with the availability of data mean that HMRC will continue to focus on offshore in the years ahead. The tax calculations can be complex, with many aspects such as residence, domicile, and trust taxation adding to the pitfalls. It is therefore essential that communications with HMRC regarding offshore tax matters are handled carefully.
