Increased HMRC powers to assess offshore tax will penalise the innocent, tax body warns

18/05/2018 News Team

The Low Incomes Tax Reform Group (LITRG) has raised serious concerns to the UK Government over its plans to extend the time limits for raising a tax assessment on offshore investments. 

Among those affected will be low income pensioners and migrants, not just the wealthy, the tax pressure group has warned.

The proposals target those taxpayers who have made innocent mistakes by extending the existing time limits to 12 years, even in cases where taxpayers have taken reasonable care with their tax obligations.

Robin Williamson, technical director of LITRG, said: “If HMRC are struggling to deal with the number of cases that involve offshore tax, that should be treated as a resource matter rather than an excuse to reduce taxpayer protection.”

The time limits exist in order to provide a taxpayer with closure and certainty over their affairs. Currently, if a taxpayer has taken reasonable care then HMRC may raise an assessment up to four years after the end of the tax year. 

The time limit is extended to six years if the taxpayer has been careless. Those who have evaded tax deliberately face an assessment window of 20 years in any case and are unaffected by the changes. Therefore, the changes affect even those taxpayers who have conducted their financial affairs in good faith and are unaware they may have an undisclosed liability, the LITRG warned.

HMRC’s stated justification for the change is that it takes them longer to ‘establish the facts’ in offshore cases. But while they are being given significantly longer to make an assessment, there is no proposed extension in the time limit for the taxpayer to file a self-assessment tax return where there is an offshore element. Nor is there any extension in the normal time limit to claim a repayment of overpaid tax, which will remain at four years, added the LITRG.

The LITRG also noted that the proposals also add a further layer of complexity to the rules on time limits given their interaction with the new Requirement to Correct rules, which mean that any liability relating to an offshore matter which is assessable at 5 April 2017 remains assessable for a further four years.

“Threatening letters from HMRC cause a great deal of unnecessary distress to vulnerable taxpayers, even if the amounts involved are trivial,” Mr Williamson said. 

“But these proposals will make such letters more commonplace. An unrepresented taxpayer will often struggle to defend themselves, faced with complex rules on the taxation on offshore investments and having to obtain information which is so old. Many of them will have felt that because the income is taxed by the overseas jurisdiction, it is not within scope of UK tax. Unfortunately, this is not the case, even if double taxation relief is available.

“This is an issue which affects pensioners and migrants in particular, who are each more likely than other low-income groups to have offshore investments. In many cases these investments are inherited. But older taxpayers are more likely than the rest of the population to be without internet skills and as such may struggle to access the information to help them understand their tax liabilities. Equally, migrants may face language difficulties in understanding such information. HMRC should focus on providing guidance and assistance to these groups to help them comply rather than denying them the closure of the normal time limits.”

LITRG is an initiative of the Chartered Institute of Taxation and was founded in 1998 to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.

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