Tax experts: HMRC clampdown could be unfair to elderly expats
Tough new measures targeting those who have not played by the tax rules have been criticised by a leading professional body concerned with taxation
Anyone owing UK tax on their overseas income is set to face punitive penalties of at least 30pc of tax due, and potentially criminal prosecution, under new draft legislation.
In addition, HM Revenue and Customs can dig back up to 20 years into your tax affairs, so if you are a consistent offender, then there could be a substantial bill, and not just from your accountant.
According to the Chartered Institute of Taxation, the new rules could catch out innocent expats, such as pensioners, who have made mistakes simply because they don’t understand the complicated international tax rules they are subjected to.
Under draft legislation announced in November, there are plans afoot to make anyone with an unpaid offshore tax liability a criminal. Under this legislation, the need to prove intent for the most serious cases of failing to declare offshore income and gains has been removed, according to the Chartered Institute of Taxation. This means it is a ‘strict liability’ offence.
Jon Preshaw, chairman of the CIOT’s management of taxes sub-committee, said: “It cannot be right that an individual who simply makes a mistake in their tax affairs, without any intention to act wrongly, should be charged with, and possibly convicted of a criminal offence; think of an elderly person who does not realise that funds are taxable in the UK because they have already been taxed in an overseas jurisdiction; or someone who inherits an offshore account without any direct knowledge of it. Taxpayers in these situations should not face criminal charges.”
Mr Preshaw added that it is “a matter of principle” that HMRC should have to show that the taxpayer had a criminal intent in their actions before they can be convicted of a serious criminal offence.
He added: “The CIOT strongly supports HMRC’s efforts to tackle tax evasion and we agree that the Government should be putting resources into combatting and investigating it. However HMRC already has the power to criminally investigate anyone with either UK or offshore untaxed funds where they can show these were deliberately not declared. If they cannot show dishonesty or criminal intent then civil penalties, up to double the amount of tax owed, in addition to the tax itself, can still be levied. These are serious powers which HMRC should arguably be making greater use of, and we are unconvinced that this additional ‘strict liability’ offence is justified.”
Initially the threshold for this new criminal offence was set at £5,000, which had the potential to easily drag those who had innocently made mistakes into the net and brand them criminals. But last month HMRC said the threshold applied would instead be £25,000 – something welcomed by CIOT.
It is also worth remembering that while the sharing of banking information internationally is due to come into effect from January 2017, it will actually see data shared as far back as January 2016 – so if you have anything that you need to clean up in terms of your offshore tax affairs, now would be a good time to start looking at it, with advice from an independent tax expert.
