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Be sure your sins will find you out! Or as HMRC put it: ‘Helping taxpayers get offshore tax right’.

HMRC today (23 March 2021), published a discussion document aimed at improving offshore tax compliance. The paper chimes with the Tax Day theme of making it easier for taxpayers to get it right first time, and using digital processes and the ever increasing amount of data available to it to make that happen.

Innocent errors and failure to take reasonable care in completing tax returns account for 28% of the tax gap – the difference between the tax which HMRC believe should be collected and the tax actually raised. That is £10 billion in the last year for which figures are available, which would be a handy contribution to the COVID-19 shaped hole in the public finances.

HMRC is now receiving vast amounts of data from overseas tax authorities through the Common Reporting Standards and FATCA initiatives and is using that data to promote compliance. In 2017-18 alone, such information led to an additional £3.3 billion for the exchequer.

So far, HMRC’s efforts have been directed at recovering the underdeclared tax after the event. The new approach is twofold: to raise awareness of taxpayer obligations and to use the data to prevent non-compliance before it happens. HMRC’s own research shows that awareness of offshore tax obligations is low. HMRC have always produced plenty of guidance. The problem was it was hidden away in the thousands of pages of information and advice on its website. They now realise that more direct communication methods are essential. They have learned from the successful Requirement to Correct communications campaign and are now looking at educating taxpayers through webinars, radio, newspapers and social media.

A particular conundrum is how to reach non-UK residents who must pay tax in the UK, for example, those liable for Non-resident Capital Gains Tax on the sale of UK real estate.

The second part of the strategy is to deter non-compliance by reminding taxpayers to declare their offshore income and gains through letters, notices to file and real time prompts while a taxpayer is completing his tax return. They could also make it clear that they already know that a taxpayer has assets in particular countries and that they collect data which details their offshore assets. So they might remind a taxpayer to include in his return any income and gains arising from his assets in specified places.

HMRC is exploring sharing this data with accountants and other agents so that they can make sure the taxpayer provides them with full information. In conjunction with the proposals to work better with agents to improve offshore tax compliance, HMRC are also consulting on raising standards in tax advice and clamping down on the promoters of artificial avoidance schemes.

There are some welcome suggestions in this paper. In particular, the recognition that taxpayers need to be educated, and educated in ways that they will be aware of and can engage with. The proposals to deal with the vast amount of data collected in a joined up way should make it easier for the innocent to get it right and provide fair warning to the less innocent that they try and conceal their liabilities at their peril.

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