Tax Planning

Find out how to get the fitting offshore tax planning

ICAS, the global professional association for accountants, has commented on HMRC’s ideas to help taxpayers maintain their offshore tax rights.

Exchanging HMRC data with taxpayers and agents would be helpful and soliciting tax returns, and contacting taxpayers and agents earlier would also be helpful, argued Susan Cattell Head of Tax Technical Policy in an informational note.

On the subject of matching items

On “Tax Day” 2021, HMRC published the discussion document “Helping taxpayers get offshore tax right”. It focuses on unintentional non-compliance rather than offshore tax avoidance or evasion.

The introduction notes that this can be caused by a number of factors including:

  • No knowledge of offshore tax obligations.
  • Guidelines and communications regarding “offshore income” are not relevant or clear.
  • Rely on anecdotal evidence or outdated advice.
  • Do not seek help and assistance until the tax return is due.
  • This is in line with feedback from ICAS members on why taxpayers often do not receive adequate advice and make mistakes with offshore tax.

What could HMRC do to improve compliance?

In the paper, HMRC set out some ideas on how it could help taxpayers gain offshore tax rights, broken down into three areas:

  • How HMRC could use data in a number of ways to help taxpayers maintain their tax rights.
  • How HMRC could better assist taxpayers with their offshore tax obligations.
  • How HMRC Could Work with Agents and Intermediaries to Promote Offshore Tax Compliance with Taxpayers.

ICAS attended two of the HMRC workshops to discuss their proposals and responded to the discussion paper.

Overall, the professional association said it would certainly be helpful for HMRC to develop processes and interventions to help taxpayers get their tax returns right – rather than waiting to address issues later.

Some of the key points in the ICAS response are listed below:

Using data to promote offshore tax compliance – digital solicitations

The HMRC receives increasing amounts of offshore data every year, particularly under the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA). Rather than just using this data to identify post-event violations, HMRC clearly has leeway to use the data earlier in the registration and self-assessment process to try to raise awareness of offshore tax obligations and avoid common mistakes.

Many unintentional non-compliances arise because taxpayers do not understand the rules and do not realize that they must report offshore income or profits to the HMRC. They may also fail to realize that they need to notify an existing agent – or that they should seek advice if they don’t have an agent.

It would be helpful for HMRC to advise taxpayers of the duty to report tax liability – with a special reference to the need to consider foreign sources. It would also be helpful to include requests for tax return filing notices that, according to information held by HMRC, taxpayers have assets or income overseas and that UK tax obligations may arise from them. All prompts must be visible to authorized agents, which currently could be difficult for input through personal tax accounts as agents would not have access. Agents who see prompts make them more effective than just relying on taxpayers to raise offshore assets or income from their agent.

Some unrepresented taxpayers may choose to seek advice when prompted, but others are likely to need the assistance of HMRC. Signposting to guide the calls would be helpful, but the HMRC helplines should also be able to handle taxpayers making offshore inquiries in response to the calls.

The earlier the requests can be included in the tax return process, the better, so that the taxpayer has more time to seek advice or support. However, HMRC’s further proposal for online requests in tax returns could also be helpful – especially if they related to specific countries and (as with the previous requests) made it clear that reporting might be required.

Using Data to Promote Offshore Tax Compliance – Transparency

Agents would like HMRC to share information (e.g. via CRS) received about their clients’ offshore income and assets. As stated in the paper, problems can arise because much of the data that HMRC receives is reported for the calendar year rather than the tax year. The data transmitted to the HMRC via CRS also frequently show inaccuracies.

Transparency on the part of HMRC by exchanging data with agents (and taxpayers) would help ensure correct entries in tax returns – and give agents / taxpayers the opportunity to explain any obvious discrepancies or point out inaccuracies in third party data. It would also reduce the number of nudge letters issued by HMRC where the returns were actually correct.

The ICAS response also discusses other issues related to inaccuracies in third party data, particularly those related to possible pre-filling of data in tax returns. There should be procedures and guarantees in place to ensure that taxpayers can correct data from third parties.

Making Taxpayers Easier – HMRC Communications

Research by the HMRC has shown that taxpayers’ awareness of offshore tax obligations is low. The discussion paper highlights potential confusion among taxpayers due to the use of different terminology in connection with international tax matters. ICAS agrees that some taxpayers may think that HMRC’s communications on “offshore”, “overseas” and “overseas” taxes are aimed at wealthy taxpayers (and at tax avoidance or evasion). This is perhaps most likely to be the case with “offshore”, which is often used in media reports in connection with tax havens and tax avoidance or tax evasion.

As a result, many taxpayers who accidentally violate the rules are less likely to find a notice relevant to them if it relates to “offshore”. “International” tax could be a more neutral term for HMRC. The paper contains some useful suggestions for areas of offshore tax on which HMRC should focus its communication efforts.

Where the target group of HMRC communications is located abroad, there were problems in raising awareness of changes in the law – as the experience with non-resident CGT shows. HMRC should have provided more targeted communications through NRCGT, such as direct communications to people who had become non-resident but who had property income in the UK.

When HMRC knows that a change affects a particular group of taxpayers or a corporate sector, it should seek targeted communication – either directly to the people most likely to be affected (which would have been possible with NRCGT) or more broadly, for example, through publications, trade organizations , Websites, and social media that people are likely to have access to.

Working with brokers to ensure offshore tax compliance

HMRC could work with intermediaries such as financial institutions and investment managers to improve the information they provide to their clients. Feedback from members suggests that some taxpayers are struggling to determine which fields to use in their tax returns for different types of income – for example, the distinction between bank interest and mutual fund interest. This complicates the data comparison. Intermediaries could help indicate how to report the receipts received.

There are also issues with the presentation and accessibility of information (especially excess reportable income) – and issues arising from the different tax treatment of investment returns. For example, something that is treated as return on investment in one jurisdiction may be treated as income in the UK. Improved communication and provision of information from financial institutions and investment managers could help taxpayers get their returns right.

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