The tax official has turned the offshore interests of millions of Britons on their head, exposing secret Swiss bank accounts and investments buried in the Caribbean.
Armed with new international tax records and stricter criminal powers, HM Revenue & Customs (HMRC) is said to have sent tens of thousands of warning letters to UK residents in an effort to make money overseas.
As a result, more than 1,000 tax invoices have been sent out this year – some are calling for amounts greater than £ 100,000 to be paid in less than a month.
Foreign Income: HM Revenue & Customs is believed to have sent tens of thousands of warning letters to UK residents to make money overseas
And it’s not just tax evaders facing huge bills. Accountants say those who rent or invest in overseas accounts are often unaware of the need to report income to the UK government.
Tax experts expect HMRC to take action against avoiding offshore taxes to fund the coronavirus recovery.
The offshore financial interests of millions of Britons have been turned over to HMRC since 2018 after an international agreement was signed by more than 100 countries.
Meanwhile, the tax officer has greater powers to punish late and unpaid invoices from offshore income with a penalty up to twice the tax owed. The HMRC can now also collect unpaid taxes from 12 years ago – twice as much as before.
According to HMRC, one in ten UK taxpayers has an offshore financial interest. This could be a holiday home in Spain that is rented out, an inheritance earning interest on a foreign account, or an investment held abroad.
The tax officer began sending tens of thousands of “kick-off letters” last year to UK residents who were supposed to be holding money and assets overseas under the Common Reporting Standard.
Accountants say many of these people owe nothing and have been alerted to receive a warning letter.
Villa owners risk fines
Thomas Hodgkinson has accountants in Greece who pay taxes on his rental property
Thomas Hodgkinson is confident he has correctly declared taxes on his Greek rental property, but says he can understand why property owners get it wrong.
The freelance journalist has accountants in Greece who handle the tax there and he also declares the income to the HMRC. But he says he finds the double declaration system “unnecessarily complicated”.
The 44-year-old Thomas has been renting out Villa Oneiro with three beds, which has an infinity pool, since 2011. In a good year the gross income will be around £ 40,000.
Thomas, who lives in Kilburn, North West London, says: “The UK tax system is complicated enough and reporting overseas property income twice adds complexity.
‘It is worrying to hear that HMRC is sending out warning letters. I’ve never had bigger problems – I just hope I got it right! ‘
An example from Money Mail reads: “We offer you the opportunity to inform us about any of your taxable income or profits. If we find out later that you haven’t told us everything, we will take it very seriously. ‘
As a result, HMRC has now sent out over 1,000 tax claim invoices to those who had not previously declared offshore income and assets.
A 40-year-old woman who did not want to be named is now appealing a £ 170,000 bill after HMRC found her father, who passed away earlier that year, had an undisclosed Swiss bank account of £ 100,000 on her behalf would have.
She was told to pay £ 45,000 in unpaid taxes, a £ 90,000 fine and historical late payment interest totaling £ 35,000.
Dawn Register, head of tax dispute resolution at auditing firm BDO, says many people were “completely unaware” that their banking information was being leaked from overseas.
She says, “It is an alarming letter to some people, but it is especially alarming when it comes out of the blue. The criticism of the HMRC is that they don’t do any further analysis before sending the letters. ‘
Accountants say those who rent or invest in overseas accounts are often unaware of the need to report income to the UK government
New laws introduced in 2018 mean the tax officer can impose a 200 percent penalty on taxes owed on foreign income and profits.
So if you owe £ 10,000 in taxes you will be fined an additional £ 20,000. Ms. Register says, “That adds to the alarm and panic these letters can cause. It’s a really nasty stab in the tail.
Many of these arrears go back many years so bills can be substantial. ‘The laws introduced in 2019 also mean HMRC can reclaim 12 years of unpaid taxes. Before that, it could take a maximum of four or six years.
If it is fraud, the tax officer can ask for a tax dating back 20 years. Ms. Register added, “The legislative changes show that HMRC really wants to punish people who fail to come forward and pay UK taxes on offshore income and profits.”
In the budget, the government said new steps to fight tax avoidance and tax evasion would raise £ 2.2 billion over five years.
Rachel de Souza, partner at RSM, says most of her clients who received an offense letter owed no tax.
She says, “By and large, we’ve found that, for the most part, we know that customers are fully compliant and have everything declared.
“A simple phone call will clarify where HMRC believes there is mischief, and in most cases there is no mischief and that is the end.
She adds, “There is a perception that the HMRC is going to get tougher. The reality for me is that I haven’t seen them get tougher.
“However, we have found that HMRC is increasingly successful in finding people who have not reported the correct amount of tax. Their systems are far more sophisticated than people can imagine. There is an enormous amount of data going into the HMRC. ‘
HMRC says it doesn’t send letters just about speculation. A spokesman said: “We now have unprecedented amounts of information on offshore bank accounts and overseas earnings.
‘More than 100 countries regularly and automatically share financial information so we can verify that people are paying the correct amount of tax.
This significant increase in global transparency plays an important role in the fight against tax evasion and avoidance. We will continue to work on creating more transparency in order to ensure a level playing field.
“We would encourage anyone with offshore income to do the right thing, to review correct tax returns and let us know if they need to correct any mistakes.”
b.wilkinson@dailymail.co.uk
Some of the links in this article may be affiliate links. If you click on it, we may receive a small commission. This helps us fund This Is Money and use it for free. We don’t write articles to promote products. We do not allow any business relationship that would affect our editorial independence.
