HMRC warns it's time to declare offshore assets

Taxpayers could face penalties if they fail to declare their income on foreign assets before Requirement to Correct legislation comes into force.

HM Revenue and Customs (HMRC) is urging UK taxpayers to come forward and declare any foreign income or profits on offshore assets before 30 September to avoid higher tax penalties.

New legislation called ‘Requirement to Correct’ requires UK taxpayers to notify HMRC about any offshore tax liabilities relating to UK income tax, capital gains tax, or inheritance tax.

However, some UK taxpayers may not realise they have a requirement to declare their overseas financial interests. Under the rules, actions like renting out a property abroad, transferring income and assets from one country to another, or even renting out a UK property when living abroad could mean taxpayers face a tax bill in the UK.

The Financial Secretary to the Treasury, Mel Stride MP, said:

Since 2010 we have secured over £2.8bn for our vital public services by tackling offshore tax evaders, and we will continue to relentlessly crack down on those not playing by the rules.

This new measure will place higher penalties on those who do not contact HMRC and ensure their offshore tax liabilities are correct. I urge anyone affected to get in touch with HMRC now.

From 1 October more than 100 countries, including the UK, will be able to exchange data on financial accounts under the Common Reporting Standard (CRS). CRS data will significantly enhance HMRC’s ability to detect offshore non-compliance and it is in taxpayers’ interests to correct any non-compliance before that data is received.

The most common reasons for declaring offshore tax are in relation to foreign property, investment income and moving money into the UK from abroad. Over 17,000 people have already contacted HMRC to notify the department about tax due from sources of foreign income, such as their holiday homes and overseas properties.

Customers can correct their tax liabilities by:

  • Using HMRC’s digital disclosure service as part of the Worldwide Disclosure Facility or any other service provided by HMRC as a means of correcting tax non-compliance.

  • Telling an officer of HMRC in the course of an enquiry into your affairs.

  • Or using any other method agreed with HMRC.

Once a customer has notified HMRC by 30 September of their intention to make a declaration, they will then have 90 days to make the full disclosure and pay any tax owed.

If taxpayers are confident that their tax affairs are in order, then they do not need to worry. If anyone is unsure, HMRC recommends they seek advice from a professional tax adviser or agent.

Further Information

  1. Examples of offshore assets include: art and antiques; bank and other savings accounts; boats; cash; debts owed to you; gold and silver articles; government securities; jewellery; land and buildings, including holiday timeshare; life assurance policies and pensions; other accounts, such as stockbroker’s or solicitors’; other bond deposits and loans including personal portfolio bonds; rights or intellectual property including image rights; stocks and shares; trusts including employee benefit trusts and self-employed persons trusts; and vehicles.

  2. New ‘Requirement to Correct’ legislation was introduced as part of the Finance (No. 2) Act 2017.

  3. Further guidance on Requirement to Correct is available on GOV.UK.

  4. Follow HMRC’s Press Office on Twitter @HMRCpressoffice.

  5. HMRC’s Flickr channel.

Who must send a tax return?

Self Assessment tax returns

The tax year is from 6 April to 5 April the following year.

You’ll need to send a tax return if, in the last tax year:

  • your income from self-employment was more than £1,000 - this is your ‘trading allowance’
  • you got more than £2,500 from renting out property - contact the helpline if it was between £1,000 and £2,500
  • you got more than £2,500 in other untaxed income, for example from tips or commission
  • your income from savings or investments was £10,000 or more before tax - this includes money from bare trusts or interest in possession trusts
  • your income from dividends from shares was £10,000 or more before tax - tell HMRC if it was over your dividends allowance
  • you made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax
  • you were a company director - unless it was for a non-profit organisation (such as a charity) and you did not get any pay or benefits, like a company car
  • your income (or your partner’s) was over £50,000 and one of you claimed Child Benefit
  • you had income from abroad that you needed to pay tax on
  • you lived abroad and had a UK income
  • your taxable income was over £100,000
  • you were a trustee of a trust or registered pension scheme
  • you had a P800 from HMRC saying you did not pay enough tax last year - and you did not pay what you owe through your tax code or with a voluntary payment
  • your State Pension was more than your Personal Allowance and was your only source of income - unless you started getting your pension on or after 6 April 2016

You also need to send a tax return if you:

  • need to prove you’re self-employed, for example to claim Tax-Free Childcare
  • want to make voluntary Class 2 National Insurance payments to help you qualify for benefits

Certain other people may need to send a return (for example religious ministers or Lloyd’s underwriters) - you can check whether you need to. You will not usually need to send a return if your only income is from your wages or pension.

If you’ve been told to send a return

If you get an email or letter from HM Revenue and Customs (HMRC) telling you to send a return but you do not think you need to, check if you need to send a return.

If you do not need to send a return, you must tell HMRC either:

  • online - you’ll need to set up a Government Gateway account if you do not have one
  • by phone or post

You may have to pay a penalty if you do not tell HMRC.

You must also tell HMRC if you’ve stopped being self-employed.

Claiming tax relief

Fill in a tax return to claim money back from HMRC for:

Registering for Self Assessment

You need to register if you did not send a tax return last year. There are different ways to register if you’re:

If you’re new to Self Assessment, you’ll need to keep records (for example bank statements or receipts) so you can fill in your tax return correctly.

Overview of Making Tax Digital

Introduction to Making Tax Digital

Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs - meaning the end of the annual tax return for millions.

Every individual and business now has access to their own personalised digital tax account and these are being regularly expanded and improved. HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world, modernising the tax system to make it more effective, more efficient and easier for customers to comply.

There is widespread agreement that Making Tax Digital for Business is the right approach for the future. However a number of concerns about the pace and scale of change have been raised. As a result the government has announced that the roll out for Making Tax Digital for Business has been amended to ensure businesses have plenty of time to adapt to the changes.

Businesses will not now be mandated to use the Making Tax Digital for Business system until April 2019 and then only to meet their VAT obligations. This will apply to businesses who have a turnover above the VAT threshold - the smallest businesses will not be required to use the system, although they can choose to do so voluntarily.

The government remains committed to ensuring we can deliver a modern digital tax system for all businesses and their agents, supporting them to get their tax right and reducing the amount of tax lost through avoidable error.

We’ve also set out below what the next steps will be.

Four foundations of Making Tax Digital

1. Better use of information

Making Tax Digital presents significant benefits for our customers. It will mean that they will not have to give HMRC information that it already has, or that it is able to get from elsewhere – for instance from employers, banks, building societies and other government departments.

Digital tax accounts for all will mean that customers can see the information that HMRC holds and be able to check at any time that their details are complete and correct. HMRC will use this information to tailor the service it provides, according to each of our customers’ individual circumstances.

2. Tax in real time

Our customers should not have to wait until the end of the year or longer to know how much tax they should pay. HMRC will collect and process information affecting tax as close to real time as possible, to help prevent errors and stop tax due or repayments owed building up.

3. A single financial account

At the moment most taxpayers cannot see a single picture of their liabilities and entitlements in one place – we are changing that. By 2020, customers will be able to see a comprehensive financial picture in their digital account, just like they can with online banking.

4. Interacting digitally with customers

Our customers (and their agents) will be able to interact with HMRC digitally and at a time to suit them. They already have access to a digital account which will present them with an increasingly personalised picture of their tax affairs, along with prompts, advice and support through webchat and secure messaging. And digital record keeping software will be linked directly to HMRC systems, allowing customers to send and receive information directly from their software.

The Making Tax Digital roadmap, published in December 2015, set out how this bold vision for the future of the tax system would be achieved by 2020.

Making Tax Digital for individuals

The Personal Tax Account brings together each individual customer’s information in one online place. It allows customers to access the service from a digital device of their choice and at a time that suits them. It enables them to register for new services, update their information and see how much tax they need to pay.

At the moment, the information that HMRC receives from a range of sources is held on separate stand-alone systems, which can result in customers being asked to report, via a Self Assessment tax return, information that is already held by HMRC. HMRC is joining up these internal systems and will automatically include information it holds about a customer’s circumstances or income in their digital account, meaning the customer will not have to do this themselves.

Under Self Assessment, over 10 million customers fill in a tax return to tell HMRC about their circumstances and income. This is a burden for customers and inefficient for HMRC as well: mistakes can be made or the information can be wrong or submitted too late, meaning the right tax is not collected at the right time and HMRC has to take action. This can lead to penalties and interest charges for the customer which could have been avoided.

More effective use of third party information, that is, information provided to HMRC by someone other than the customer or their agent, will reduce the reporting burden on customers and reduce errors, making it easier to declare the right tax.

As the Personal Tax Account develops, customers will use it to tell us when things change. Over time, customers will no longer need to complete tax returns at the end of the year.

We are beginning by using information HMRC already holds and will make better use of this by connecting it with customers and displaying it in their tax account.

Making Tax Digital for business

HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world, modernising the tax system to make it more effective, more efficient and easier for customers to comply.

The majority of customers want to get their tax right but the latest tax gap figures (2014 to 2015) show too many find this hard, with a cost to the Exchequer of over £8 billion a year due to avoidable taxpayer mistakes. In 2014 to 2015 over £3.5 billion of revenue was lost due to these mistakes in VAT returns alone.

A modern tax system, based on digital technology will make it easier for businesses to get their tax right. Reducing the amount of avoidable errors will also reduce the cost, uncertainty and worry that businesses face when HMRC is forced to intervene to put things right.

The logic of digitising the tax system is widely recognised and millions of businesses are already banking, paying bills, and interacting online. Digitising routine business tasks such as record keeping is the next step and is one many businesses have already taken.

There is widespread agreement that Making Tax Digital for Business is the right approach for the future and we will continue to work closely with stakeholders to ensure Making Tax Digital is a success. However a number of concerns about the pace and scale of change have been raised. As a result the government has announced that the roll out for Making Tax Digital for Business has been amended to ensure businesses have plenty of time to adapt to the changes.

Businesses will not now be mandated to use the Making Tax Digital system until April 2019 and then only to meet their VAT obligations. This will apply to businesses who have a turnover above the VAT threshold – the smallest businesses will not be required to use the system, although they can do so voluntarily.

This change means that no business will need to provide information to HMRC under Making Tax Digital for business more regularly than they do now. VAT has been online since 2010 and over 98% of VAT registered businesses already file electronic returns.

Making Tax Digital will build on this by integrating digital record-keeping to provide a single, seamless process with quarterly updates generated and sent direct from the software the business/agent uses to keep their records.

We expect many of these businesses to take the opportunity to provide quarterly updates for other taxes too, but there will be no mandatory requirement to do so. Similarly, businesses that are not VAT registered and those below the VAT threshold who have voluntary registered for VAT can opt to join Making Tax digital for Business, giving them the choice of whether to opt to use commercial software to keep track of their tax affairs digitally and update HMRC on a quarterly basis.

By introducing Making Tax Digital for Business on a voluntary basis for most and only making it mandatory for those who already interact with HMRC regularly and digitally, we can smooth the transition maximising the opportunities of a modern digital tax system.

The government has committed that it will not widen the scope of Making Tax Digital for Business beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest. This will ensure that there is time to test the system fully and for digital record keeping to become more widespread.

Our consultations

In August 2016 we published 6 Making Tax Digital consultations. They set out our thinking on some of the key design and development of Making Tax Digital.

Next steps

The first businesses have already started keeping digital records and providing updates to HMRC as part of a live pilot to test and develop the Making Tax Digital service for income tax and NICs and we will continue to expand this pilot.

The government will re-introduce the legislation to give effect to Making Tax Digital for business that was published in the Finance Bill after the Spring Budget.

We will start to pilot Making Tax Digital for VAT by the end of this year, starting with small-scale, private testing, followed by a wider, live pilot starting in Spring 2018. This will allow for well over a year of testing before any businesses are mandated to use the system. No business will be mandated before 2019.

From April 2019 businesses above the VAT threshold will be mandated to keep their records digitally and provide quarterly updates to HMRC for their VAT.

We will continue to work in close partnership with the software industry and agents to ensure successful implementation of Making Tax Digital for Business.

Research and case studies

We have published independent research into Making Tax Digital for business and created a number of case studies to illustrate how Making Tax Digital as a whole will work in practice.

Roadmap

The Making Tax Digital roadmap was published in December 2015 and set out the Government’s initial plans for digitising the tax system.

Spot fake HMRC communications to avoid being scammed

HM Revenue & Customs have recently updated (17 October) their guidance on how to take action against scammers, who use sophisticated methods to fraudulently obtain sensitive and private information.  So-called ‘phishing’ is used by criminals seeking to access taxpayers’ information for their own benefit, usually through duplicating the look and feel of a genuine HM Revenue & Customs or UK government website or email, but changing the content to take users to an insecure website or have them unwittingly download a malicious attachment containing a virus.

An alarming number of taxpayers (and non-taxpayers!) are likely to have received communications that look like genuine HMRC correspondence, often reeling victims in with false promises of tax refunds.  Any suspicious communications you receive can be forwarded to phishing@hmrc.gsi.gov.uk, after which you should delete the message.
 

Sources: [1] Genuine HM Revenue and Customs contact and recognising phishing emails – GOV.UK, [2] Phishing emails and bogus contact: HM Revenue and Customs examples – GOV.UK

Government’s first Autumn budget to be held on 22 November

Following the move from a Spring budget to an Autumn budget, 2017 unusually sees two full-scale budgets.  It is likely that there will be some changes from Spring’s budget for 2017/18 that will be adapted further, with two key talking points to look out for being:

1.      Self-employed National Insurance Contributions will be simplified by abolishing Class 2 NICs and increasing Class 4 NICs to 10% from 2018/19 and 11% from 2019/20.
 

2.      The tax-free dividend allowance that replaced the 10% dividend tax credit of previous years will be reduced from £5,000 to £2,000 from 2018/19, in a bid to raise more taxes from the self-employed.

At Senstone, we will help you accommodate these changes as best as possible, looking into tax-efficient methods for withdrawing income from self-employment.
 

Sources: [1] Autumn Budget 2017 date confirmed, [2] Spring Budget 2017: 21 things you need to know

HM Revenue & Customs deadline for paper tax returns looming

Although a large majority of taxpayers have switched to online filing for their self-assessment tax returns in recent years, paper returns are still popular among some generations.  Paper returns are also likely to be particularly popular for 2016/17 due to recent delays in the rollout of Making Tax Digital (MTD), and some distrust in the accuracy of HMRC’s online software, which has led to correct returns being wrongly rejected by HMRC.

Paper returns need to reach HMRC by 31 October each year, with calculations for the tax year ending on the preceding 5 April.  We recommend that paper returns are sent immediately for 2016/17, as unfortunately for late filers, harsh and cumulative penalties are charged by HMRC:

·        Immediate penalty - £100

·        Penalty after 3 months - £10 per day, up to £900

·        Penalties after 6 and 12 months – 5% of your tax liability, at a minimum of £300

Top tips for avoiding phishing scams

1.      HMRC never sends tax refund notifications via email or text message, and will never ask for your personal information – so do not respond with your information!
 

2.      Sometimes, email addresses used to send fraudulent emails are spoofed, to look like official HMRC email addresses.  Although an email address may look very trustworthy by ending in @hmrc.gov.uk or something similar, this does not mean it has been sent by an official organisation.  Again, do not respond with your personal information if requested.
 

3.      Do not click links/attachments in emails/text messages that you are not sure are genuine.  Keep in mind that HMRC will not contact you regarding a potential tax rebate.  Links in emails that falsely claim you have a refund due are likely to be fraudulent, and may contain a virus or malware to damage your computer or steal your information.
 

4.      Do not give any personal information out to anybody who calls you and claims to be from an official organisation.  This can be any unsolicited cold caller, who is primarily after information that will allow them to gain from your misfortune.  The best way to be sure you are safe is to ring the number on the official website, and always make attempts to verify somebody’s identity.
 

5.      Use a professional to keep your tax affairs up to date and as efficient as possible, as this will avoid most of the doubt, as your returns are expertly prepared, and advice can be sought on strange-looking emails.  Remember, if it sounds too good to be true, it may well be.
 

Sources: [1] Genuine HM Revenue and Customs contact and recognising phishing emails – GOV.UK, [2] Phishing emails and bogus contact: HM Revenue and Customs examples – GOV.UK