According to data obtained under a Freedom of Information Act request by contractor accountants, Access Financial, HMRC raked in £6.5 million from requests to foreign tax authorities for information on expat British taxpayers in 2018, more than eight times the amount in 2013 (£796,835).
HMRC made over 704 requests to foreign tax authorities for information on expat British taxpayers in 2018, representing a yield of £9,241 per taxpayer. This is a significant increase on the yield per taxpayer in 2017, when 1,006 requests for data brought in £5,664 per taxpayer.
The requests for information on British taxpayers working abroad were made by the Mutual Assistance in the Recovery of Debt (MARD) team at HMRC. The MARD team is empowered to take legal proceedings to enforce a foreign debt claim as might be taken to enforce a corresponding UK claim. Tax debts can be recovered from EU and some non-EU jurisdictions.
Access Financial says that British expats caught out by HMRC will have paid considerably more in penalties on top of the overdue tax. This is because HMRC can charge an increased penalty where the income or asset that gives rise to the penalty is held outside of the UK. For income or assets outside the UK, HMRC can impose penalties of up to 200 per cent of the value of the outstanding tax.
Kevin Austin, Chief Executive of Access Financial, said: “The surge in the amount of tax HMRC is bringing in through collaboration with foreign tax authorities is likely just a foretaste of what is to come. Tax authorities around the world are acting in a more joined-up way, which makes it increasingly important that British expats ensure their tax affairs are in order. HMRC has improved its targeting of British taxpayers working abroad and is managing to bring in considerably more for each enquiry.
“Gone are the days when taxpayers who frequently worked or owned assets in different countries were able to slip between the cracks. It used to be the case that HMRC struggled to catch up with these people and was instead reliant on them being honest and understanding their liabilities in the UK which, even with the best intentions, can be very difficult.
"There is an incorrect assumption that people cease to be tax resident in the UK when they work abroad but very often a UK tax liability will arise on foreign earnings. A significant proportion of British contractors who are working abroad, or have worked abroad recently, are likely to have not paid the correct amount of tax. The likelihood of HMRC catching up with them is much greater now than at any time in the past.”
A global tax transparency initiative called Global Reporting Standard (GRS) was launched with the first automatic information exchanges taking place in September 2017.
Participants in the GRS include most European countries, the Crown Dependencies and overseas territories. Information on taxpayers with accounts based in another 50 jurisdictions, including Switzerland, Monaco and Singapore, began to be exchanged from September 2018.
Too good to be true
According to Access Financial, British contractors utilising offshore tax solutions, many of which promise high levels of take-home pay, are facing ever-greater risks as information exchange between tax authorities becomes more systematic.
Kevin Austin said: "Despite numerous crackdowns, offshore tax avoidance schemes are still being touted and these can be tempting to contractors operating in continental European markets, where the tax burden can be significantly higher than the UK. The promotors of these schemes often claim to have HMRC’s approval, but HMRC never endorses schemes, making any such claims fraudulent. If HMRC deems a scheme to be non-compliant, it can demand backdated tax, penalties and interest. HMRC now also has the power to compel taxpayers to pay their potential tax liabilities up front, instead of having to chase them through the courts.
“Some offshore schemes promise taxpayers that they can retain up to 90 per cent of their income. People tempted by these schemes need to clearly evaluate the risks, which are much greater now than they have been in the past. As a rule of thumb, if a scheme sounds like it’s too good to be true, it probably is.”
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Susie Hughes © Shout99 2019