HMRC took over £500 million from British taxpayers with offshore interests

HMRC netted £560m from investigations into British taxpayers with offshore assets and income last year. This was the first time that HMRC has managed to exceed half a billion pounds, according to information obtained by accountancy firm Access Financial.

According to data obtained under a Freedom of Information Act request, the elite Offshore, Corporate and Wealthy unit, which sits within the Fraud Investigation Service at HMRC, has increased its tax haul by 72% over the past two years, rising from £325m in 2016/17.

“HMRC’s new offshore unit is becoming much better at focusing its resources on the biggest tax threats,” said Kevin Austin Chief Executive of Access Financial. “It is staffed by highly experienced lawyers and accountants and is armed with a vast amount of data and sweeping powers. It has already increased the amount it is netting from investigations by more than two thirds in just two years and this is likely to be a foretaste of much more to come.”

The new Offshore, Corporate and Wealthy unit targets high-net-worth individuals and businesses with undeclared offshore interests. In 2018/19 they made investigations into 827 individuals or businesses, representing an average yield of £677,000 per taxpayer. This is a significant increase on the yield per taxpayer in 2016/17, when 842 investigations were started, resulting in £325m of additional tax being identified.

According to Access Financial, the Offshore, Corporate and Wealthy unit was founded around the time of the Panama Papers leak (2015) and has been receiving data on bank accounts since 2016 from offshore financial centres, including the Channel Islands, Bermuda and the British Virgin Islands.

“The unit is sifting through huge amounts of data, including information on bank accounts from offshore financial centres such as the Channel Islands, Bermuda and the British Virgin Islands. HMRC is able to use this data in conjunction with “Connect”, a software system designed to analyse vast amounts of personal and commercial information and establish links between individual taxpayers and businesses, income, assets and transactions,” said Austin.

“Tax authorities around the world are acting in a more joined-up way, which makes it increasingly important that taxpayers ensure their tax affairs are in order. Gone are the days when taxpayers who frequently worked or owned assets in different countries were able to slip between the cracks,” he added.

Access Financial says that taxpayers caught out by HMRC will have paid considerably more in penalties on top of the overdue tax. This is because HMRC can charge an increased penalty where the income or asset that gives rise to the penalty is held outside of the UK. For income or assets outside the UK, HMRC can impose penalties of up to 200% of the value of the outstanding tax.

HMRC’s tax haul from UK taxpayers with offshore interests

Access Financial pointed out that a global tax transparency initiative called Global Reporting Standard (GRS) was launched with the first automatic information exchanges taking place in September 2017. Participants in the GRS include most European countries, the Crown Dependencies and overseas territories. Information on taxpayers with accounts based in another 50 jurisdictions, including Switzerland, Monaco and Singapore, began to be exchanged from September 2018.

Strict liability offence

It has also become easier for HMRC to prosecute taxpayers for offshore tax evasion. A new ‘strict liability offence’ came into effect in October 2018. This made it a criminal offence to fail to declare offshore income of more than £25,000 and means that HMRC does not have to prove intent to evade tax, making it much easier to secure a conviction.

Access Financial adds that the Criminal Finances Act 2017 introduced a new offence of failure to prevent the facilitation of tax evasion, which means HMRC can investigate and prosecute companies who have not done enough to prevent their staff and other representative from intentionally helping others to evade taxes.

Austin warned British taxpayers with foreign earnings that they are likely to have paid the wrong amount of tax and that the likelihood of HMRC coming after them is far greater than before.

“There is an incorrect assumption that people cease to be tax resident in the UK when they work abroad but very often a UK tax liability will arise on foreign earnings. A significant proportion of British taxpayers who are working abroad, or have worked abroad recently, are likely to have not paid the correct amount of tax. The likelihood of HMRC catching up with them is much greater now than at any time in the past,” he said.

Austin also warned that British taxpayers utilising offshore tax solutions, many of which promise high levels of take-home pay, are facing ever-greater risks as information exchange between tax authorities becomes more systematic.

“Despite numerous crackdowns, offshore tax avoidance schemes are still being touted and these can be tempting to expats operating in continental European markets, where the tax burden can be significantly higher than the UK.

“The promoters of these schemes often claim to have HMRC’s approval, but HMRC never endorses schemes, making any such claims fraudulent. If HMRC deems a scheme to be non-compliant, it can demand backdated tax, penalties and interest. HMRC now also has the power to compel taxpayers to pay their potential tax liabilities up front, instead of having to chase them through the courts,” said Austin.