Over the past couple of years, HMRC have started to send letters out to UK taxpayers regarding their offshore income, asking them to certify their current UK tax position.
This is in accordance with the Common Reporting Standard (CRS), a global initiative designed to allow countries to share information about non-residents’ bank and other financial accounts. The UK is one of over 100 countries that have signed up for the CRS, which covers detailed information including the balance and value of any accounts you have, the amount of interest accrued and any payments credited.
What Are Certificates Of Tax Positions?
Certificates of Tax Position is an investigative approach which was developed by the Offshore Risk and Intelligence Service team at HMRC. Those who are affected will have received a letter which is headed ‘Important: Your final opportunity to bring your worldwide tax affairs up to date.’
They were first sent out from the beginning of 2019, but if you have offshore holdings and have not received this letter you may still do so in the future, if HMRC suspects that you have undeclared income or assets in foreign countries.
What Does This Mean For You?
Just because you receive a letter, this does not necessarily mean that you do have undeclared income or tax irregularities. However, it is important for entrepreneurs to understand the seriousness of being targeted by the Certificates of Tax Position tool in the first place.
These letters could be the first step in a tax investigation that could lead to serious financial loss for the individual and reputational damage to any companies they are associated with. Everything from investor confidence to brand image could be damaged by an investigation into an entrepreneur, or the senior director of a company. This means that it is critical that this issue is handled immediately, with full compliance and transparency.
What Should You Do?
The easiest way to avoid being targeted in the current HMRC crackdown on tax evasion is to ensure that you correctly determine your current UK tax position and report it accurately in your tax return each year.
If something changes, then you should keep thorough accounts so that you can be clear in what has changed in the following year’s return. Having an accountant or accounts team dedicated to preparing your accounts and reporting to HMRC is the best way to do this.
However, with that in mind, it is possible for mistakes to be made. HMRC state it is understanding of this as long as you are willing to rectify the problem once it is uncovered.
If you have received a letter from HMRC then it is useful to seek professional advice from an accountant or solicitor before you make a declaration. A complete disclosure which corrects the issues stated and offers of full payment of any tax outstanding will help the investigation to be completed quickly, and minimises your chances of having to pay large penalties.
What Happens If I Receive A Letter?
The letter that you receive will require you to choose from one of three declarations such that the chosen one accurately states your current taxation position with regards to offshore income and assets.
These declarations are as follows:
- I need to bring my tax affairs up to date. I will declare all my offshore money and assets which UK tax may be due using the Worldwide Disclosure Facility (WDF) via HMRC.
Choosing this means that you accept that you need to correct or update your taxes with regards to a offshore account(s). You will then follow this declaration with an updated statement of your offshore accounts and income, via the WDF. If you do not do this quickly, HMRC are likely to conduct an investigation.
- I do not have offshore income, assets or gains on which UK tax could be due.
This option states that you do not have any offshore accounts or income, are confident of this, and are happy for HMRC to confirm this. Please bear in mind that HMRC are only sending letters to those for whom they have evidence to the contrary of this statement and that a thorough investigation will likely commence as a result of giving this response.
- I do not have any additional tax to pay and I have declared all of my offshore income and assets. My tax affairs do not need updating.
Here you are saying that you do have offshore accounts or assets, but that you are completely confident that you know what you owe and have been paying the correct amount of tax. This is the right option to choose if you and your accountant are certain that your tax affairs are in order.
Whilst it may be tempting to make a false declaration and hope that this is the end of the matter, it is worth knowing that the current HMRC crackdown on tax evasion is proving to be very thorough and is likely to uncover the truth if it is different from what you are claiming. If you do make a false declaration and are discovered, this may result in a criminal conviction, with a maximum penalty of 5 years in prison.
The Certificates of Tax Position letters that are sent out with a 30 day deadline, meaning that you need to get your declaration and any proof that you have back to HMRC as quickly as possible. If you ignore the letter or put off replying to it then you may inadvertently draw more attention to yourself or your business and trigger an investigation.
Whether you have anything to hide or not, the answer to receiving one of these letters is always to face it head on, get professional advice, and make your disclosure as soon as possible.
You can use the Worldwide Disclosure Facility to make a disclosure quickly and easily online, and prevent HMRC placing penalties on you, or taking criminal proceedings against you.
To best understand what your options are, it is highly recommended to speak with a professional accountant, tax lawyer or similar at the earliest opportunity, as they will best be able to advise you on what you need to do going forward.
To speak with our qualified advisers for confidential advice on this matter please contact TFMC on 08004704820 or email email@example.com