Exchange of information and voluntary disclosure
We are now at the start of an era where unprecedented levels of information will be supplied to HMRC in respect of UK residents who have overseas income. This will have a major impact on UK tax resident non domiciled individuals.
Originally agreed in 2014 between 47 countries, the Common Reporting Standard (CRS) is a global initiative launched by the OECD, designed to prevent tax evasion using Automatic Exchange of Information Agreements between countries’ tax authorities.
From 2016, 58 counties have signed up to automatically exchange information about assets and income to other relevant authorities such as HMRC and from 2017 a further 35 countries have joined the club.
Now (in 2021), over 100 countries have signed up to the use of CRS for sharing information, including all countries in the European Union, United Kingdom, China, India, Hong Kong, Russia. As the United States has already implemented their own version with FATCA and offer reciprocal access, they are not officially signed up to these initiatives.
The CRB and the Automatic Exchange of Information applies to any person with financial accounts or responsibilities outside of their country of tax residence. In particular, this will impact on: -
- UK residents with undisclosed assets overseas
- UK residents with complex structures in place involving overseas assets as these will be reported to HMRC possibly for the first time.
As part of CRS and the Automatic Exchange of Information Agreements the following information will be exchanged automatically:
- Date of birth
- Place of birth
- Country/countries of tax residence
- Tax Identification Number/National Insurance Number (or equivalent where applicable)
- Account details (of the bank account or the relevant institution)
- The total account balance/value of your accounts calculated at the end of the calendar year, including any interest (excluding the balance of any excluded accounts)
A small selection of financial accounts is excluded, although this will vary depending on each jurisdiction. For example, in the UK, Premium Bonds are excluded.
When HMRC receive the information, they are likely to put the onus on the taxpayer by asking them to conform that they have declared all the relevant information on their tax returns and that their UK affairs are in order both currently and historically. They will then decide what action to take based on the amount of risk they assess to the reply. In some cases, an investigation with be started immediately. If this is the case, you need to be prepared to respond.
Some common area’s they have looked at to date include: -
- Can the source of the capital held overseas be evidenced?
- Has bank account segregation to preserve clean capital always been carried out correctly or have the clean capital accounts been contaminated?
- Remittances to the UK directly or to third parties
- Beneficial use of assets in the UK owned by overseas companies
- Use of overseas credit cards in the UK
- UK source income added to overseas portfolios
- Inheritance tax entry, exit and ten year charges
Ultimately, if you have accounts with financial institutions outside your country of residence, you must ensure that your tax affairs are in order, correct and all correct taxes declared in all relevant jurisdictions. Currently there are arrangements in place where a voluntary disclosure can be made to HMRC and favourable terms will be applied to the settlement, if you do not act and HMRC obtain this information you would face more severe penalties and maybe even prosecution.
The following action should be considered:
- Discuss the position with your offshore institution to ensure you fully understand the disclosures they will make
- Review your affairs in detail to ensure you are fully compliant and ready to fend off a change from HMRC
- Discuss the tax position with your tax adviser and disclose if necessarily any amounts you need to declare before HMRC come knocking on your door
Why make a voluntary disclosure?
The penalties for failure to correct your prior year tax position are much higher if HMRC have to prompt you for disclosure in comparison to a voluntary disclosure.
By making a voluntary disclosure, you will not be prosecuted for criminal tax evasion. The amount of penalties will be substantially reduced, and HMRC will limit the investigation to the last 7 years. Although, you will still have to pay tax, penalties, and interest, but with substantial reductions.
If you feel you may have an issue relating to this matter or you would just like us to go over your affairs in detail to obtain peace of mind, please do not hesitate to contact us and we can then prepare a personal detailed action plan.
Services we offer
We are pleased to able to offer the following taxation-based services:
- A General tax consultation and/or specific tax advice;
- Tax planning for your general situation or for a specific transaction;
- Registration for National Insurance and Unique Tax Reference numbers;
- Preparation and submission of annual self-assessment returns;
- Preparation and submission of returns for overseas landlords;
- Formation of UK and offshore companies in respect to an acquisition of the commercial property and administrative and accounting services for corporate entities.
All taxation services are arranged on a fixed fee basis with the fee to be charged agreed in advance of any work being undertaken.
For all questions regarding your business in the UK and tax planning, please contact our Business Consultancy team at Law Firm Limited on +44 (0)20 7907 1460 or via email