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  • Writer's pictureSara White

HMRC gives offshore tax evaders disclosure break

UK residents who were named in the leaked Pandora Papers which revealed extensive tax evasion are being given the chance to correct their tax affairs

Sara White, Editor, Accountancy Daily

HMRC is writing to the UK residents named in the files of 14 offshore financial service providers. These providers specialise in companies, trusts, and foundations in low, or no tax, jurisdictions.

The letters, which started going out on Monday 5 June, warn recipients to report all their overseas income or gains that they owe UK tax on, or face penalties of up to 200% of any tax due and even prosecution.

During 2021 and 2022, the International Consortium of Investigative Journalists (ICIJ) released more than 11 million records from 14 offshore service providers, referred to as the Pandora Papers.

As soon as the papers were released, HMRC began reviewing the data, which was the largest ever release of financial documents, surpassing the 2016 release of the Panama Papers, to find UK residents with untaxed offshore assets.

Recipients of these letters can make disclosures under the Contractual Disclosure Facility or Worldwide Disclosure Facility. It is important that individuals use the correct disclosure facility and HMRC is warning individuals to get professional tax advice.

Kirsty Telford, deputy director for offshore at HMRC’s risk and intelligence service said: ‘Tax evasion is increasingly global and so is HMRC’s reach, accessing data and intelligence through international collaboration.

‘Our message to users of these financial services is to be honest and pay the tax you owe, the reputational and financial damage if you don’t can be significant and long-lasting. We are giving people the opportunity to do the right thing and correct their tax records, before we take action.’

The Contractual Disclosure Facility (CDF) is a contractual arrangement whereby HMRC undertakes not to criminally investigate, in return for the taxpayer’s open full, open, and honest disclosure of all the tax fraud committed. It is part of COP9.

Under the investigation of fraud procedure, the recipient of COP9 is given the opportunity to make a complete and accurate disclosure of all their deliberate and non-deliberate conduct that has led to irregularities in their tax affairs.

The Worldwide Disclosure Facility (WDF) is for use by anyone who wants to disclose a UK tax liability that relates wholly or partly to an offshore issue. The WDF does not provide any protection from prosecution and so where there is deliberate and/or fraudulent conduct such as evasion the CDF is the more appropriate facility.

Jessica McLellan, tax risk & dispute resolution partner at Wilson Wright, said: HMRC’s latest nudge letters are based on information from the leaked Pandora Papers cross-referenced to the large amount of data that they hold on high net worth individuals (HNWIs) in the UK.

‘Offshore structures can be highly complex and difficult for HMRC to fully understand from what is reported to them by foreign jurisdictions or from leaked data such as the Pandora Papers. Such information is not always accurate or interpreted in the right context.’

McLennan also warned that some high net worth taxpayers would be sent the letters as HMRC does not necessarily have the correct information on all individuals so it is important to be careful and seek professional advice before responding to the information requests.

‘Those who have complex offshore affairs and believe they have done their best to comply with all tax reporting obligations may also receive such a letter. This is a strong indicator that HMRC only have part of the jigsaw and are likely to suspect non-compliance as we’ve seen with other offshore information-based nudge letters in the past.’

HMRC Contractual Disclosure Facility (CDF): Admit tax fraud to HMRC

HMRC Worldwide Disclosure Facility (WDF)

HMRC guidance, Tax on foreign income

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