Offshore Compliance – The Tide Has Turned!

The Past…

In his March 2015 Budget statement, the then Chancellor of the Exchequer, George Osborne “set alarm bells ringing” by announcing the early closure of all offshore disclosure facilities, including the much-vaunted Liechtenstein Disclosure Facility (LDF) and the less popular Crown Dependencies Disclosure Facilities (CDDF). This seemed an unusual step to take, the LDF and CDDF had at that point in time successfully recovered hundreds of millions of pounds for the Treasury, as natural successors to earlier disclosure facilities such as the Offshore Disclosure Facility in 2007. The explanation was very straightforward, the UK was at the vanguard of seeking the “holy grail” solution to unregularised offshore investments, and that had to be the automatic exchange of information which we all now know to be the Common Reporting Standard (CRS). The earlier justification for incentivised disclosure facilities on preferential terms was built on the premise that the identity of those investing offshore without leaving a footprint in the UK could not be established, the only policy with a chance of success was encouraging voluntary compliance which disclosure facilities delivered. With over 100 countries now agreeing to share offshore data, the UK and many other countries can no longer politically sustain a policy of voluntary compliance, given the identities of the rich and wealthy who seemed most to benefit are now known.

The Present…

In 2016 HMRC announced the commencement of the Worldwide Disclosure Facility (WDF) but many see this as a misnomer as there are little if any benefits of registering, in reality it provides little more than an online registration portal. The WDF was quickly followed by the introduction of the new Requirement to Correct (RTC) legislation in Finance Bill 2017. This was a clever legislative requirement for any person, with an unregularised offshore asset subject to UK tax, to register through the WDF no later than 30 September 2018 or face new draconian penalties. It will be interesting to see how many chose to register through this process and the overall benefit to the Treasury. However you view RTC, it was certainly a “watershed” in terms of offshore compliance moving from a “carrot” to a “stick” based approach, underpinned by the vast offshore data HMRC now holds from CRS. For those who chose not to correct, for whatever reason, the future is very bleak. HMRC will undoubtedly use its “state of the art” analytical and risking tools to identify who they are and take whatever action it deems appropriate. These actions could include the new strict liability criminal offence for individuals or, swingeing penalties linked to naming and shaming, plus its managing serious defaulters’ campaign. Similarly, there is no escape for those HMRC view as enablers who it believes has assisted evaders. The new corporate criminal offence of facilitating tax evasion is yet to be tested in the Courts and HMRC will undoubtedly wish to identify early offenders to maximise its deterrence effect.

The Future…

Crucially, where does this leave those who have rightly maximised the opportunities in recent years to become fully tax compliant regarding their offshore assets? There is no doubt HMRC will focus long and hard in ensuring they remain tax compliant. Recent announcements regarding the digital agenda make it clear a proactive approach will be adopted through data matching, risk assessing etc. The CRS and other available data will enable HMRC to quickly identify those who deliberately or carelessly default again. Not only will there be targeted civil investigations potentially under codes of practice 8 and 9, as was the normal practice before the introduction of disclosure facilities, but no doubt an increasing number of random enquiries will surface. The future does look bleak and steps should be taken to mitigate the risks of a costly, and what may in some circumstances be an unwarranted HMRC intervention, as quickly as possible. Offshore investors should definitely consider the need for regular and cost effective “health checks” to ensure ongoing compliance. Those who find themselves in difficulties with HMRC, the early engagement of a specialist adviser is highly recommended to cope with what will now be the complex process of future engagement with HMRC.

By Andy Cole CBE, former director of HMRC’s Specialist Investigations.

LinkedIn link- Andy Cole