How will HMRC find suspected irregularities?
Common Reporting Standard (CRS)
HMRC has access to a great deal of information both within and outside the borders of the United Kingdom. The Automatic Exchange of Information regimes allow participating jurisdictions to share information with each other about income earned and assets held overseas by residents of each country. The Common Reporting Standard (CRS) is a reporting model imposed from 2016 in the UK by the European Directive on Administrative Cooperation (DAC). The CRS enables the exchange and access of certain financial information, including overseas accounts and investments held by UK taxpayers, between tax jurisdictions under the Organisation for Economic Co-operation and Development (OECD).
Ahead of HMRC receiving the CRS information, it introduced new legislation called the Requirement to Correct (RTC). This allowed taxpayers to correct their tax irregularities by 30 September 2018 before HMRC acted on information received under the CRS. For more information on HMRC’s powers, penalties and how we can help, please click here.
Failure to Correct (FTC)
Disclosures made after the RTC deadline, when disclosing irregularities for tax years up to and including 2015/16, are subject to FTC penalties. These are significantly higher than standard offshore penalties but can be reduced by submitting an unprompted disclosure, making it even more crucial to disclose irregularities as soon as you’re aware of them, and before HMRC nudges or prompts you to disclose.
The minimum penalty for an unprompted voluntary disclosure under FTC is 100% of the unpaid tax, provided the disclosure is full and accurate. The maximum penalty for a prompted disclosure under FTC is 200% of the unpaid tax. By submitting a full and accurate prompted disclosure, an FTC penalty can be reduced to 150%. It is, therefore, imperative that you make an unprompted voluntary disclosure to reduce the penalties you could receive.
HMRC carries out compliance check investigations to make sure declarations made on an individual’s tax return accurately reflect their position for that tax year. Compliance checks can either target a particular aspect of your tax return (known as an aspect enquiry), such as a claim for relief or a specific item of income, or they can be a full enquiry into all areas. Once an enquiry has been resolved and if inaccuracies are identified HMRC may impose penalties. These are tax geared and can go up to 200% of the tax that is due.