HM Revenue and Custom's "growing punitive power" will become a complex and "thorny" issue for both taxpayers and accountants, head of private wealth at accountancy firm Saffery Champness, James Hender, has warned.
This follows HMRC’s announcement on tougher penalties for offshore tax dodging, the announcement of penalties for late trust registration, and the recent consultation into the extension of offshore time limits.
Mr Hender advised taxpayers to ensure they are "on top of their affairs" as failure to correct offshore tax mistakes can result in penalties of 200 percent of tax liability.
"Our experience in these matters is that HMRC’s starting point is often to believe the worst, and it can be difficult to persuade them an error is innocent. Incorrect conclusions can be reached by HMRC when wires are crossed, and with the potentially huge penalties, this is a matter that cannot be swept under the carpet," he said.
“With the Common Reporting Standard now starting to provide a huge amount of information to HMRC, taxpayers should double check their offshore affairs are in order, as it will be far worse if HMRC comes knocking first.”
Refering to the late trust registration penalties, Mr Hender described them as being "a bombshell for many" with it remaining unclear right up to the deadline day what the scope of HMRC’s powers would be.
He continued: "The requirements are significantly more detailed than the old registration system, which focused on those trusts with income tax or CGT liabilities, and the inclusion of stamp taxes in the list means that many trusts that have been in existence for years, but where the trustees have no liability for UK direct taxes, need to be aware that they will be required to consider registration for the first time."
“Whilst HMRC claim that as long as there is evidence that all steps that could be taken to comply have been taken, there is the possibility of registering late without a penalty being issued. However, the reality is it is difficult to quantify ‘reasonable steps’, and trustees should ensure as a matter of urgency that they understand their registration and reporting obligations to avoid any prospective penalties.”
On the extension of offshore time limits, Mike Hodges, partner at Saffery Champness commented: “The proposed extension of HMRC’s time limit to investigate offshore tax matters where there has been no fault by the taxpayer from four, to 12 years, significantly expands the taxman’s ability to delve into offshore structures and transactions and sniff out non-compliance.
“Taken together, HMRC’s rhetoric is increasingly being backed up by a stick which is getting bigger by the day.”
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