HMRC offers options on undeclared wealth
HMRC is offering taxpayers named in the leaked Pandora Papers a chance to correct their tax affairs. The October 2021 leak involved almost 12 million documents revealing hidden wealth and tax avoidance.
The papers revealed that many taxpayers had used shell companies to hold luxury items such as property and yachts.
HMRC has reviewed the papers and found UK residents who they believe have untaxed offshore assets. They are now warning those taxpayers that they might face penalties of up to 200% on the tax due, and there is also the possibility of prosecution.
Disclosure
There are two alternatives for taxpayers who wish to disclose tax due on undeclared overseas income or gains:
- The Worldwide Disclosure Facility: This can be used by anyone who wants to disclose a UK tax liability that relates wholly or partly to an offshore issue. With this alternative, there is no protection from prosecution if, for example, there has been tax evasion.
- The Contractual Disclosure Facility: This can only be used to admit to tax fraud, and not other types of disclosure. HMRC will agree not to criminally investigate, so this is the best option where there is dishonesty or fraud.
Voluntary disclosure may help mitigate penalties due, and also provide some measure of control over the process.
Receipt of a letter
Anyone who receives a letter from HMRC should review their tax position, and, if disclosure is required, take immediate steps to correct the situation. Given the complexity of overseas tax matters, professional advice is recommended.
The Pandora Papers is the third major leak of financial information, and with HMRC having 12 years to investigate offshore non-compliance, it should serve as a timely reminder to taxpayers who fail to declare and pay tax on overseas income and gains and think that HMRC will never find out.
HMRC’s press release on giving offshore taxpayers a chance to come clean, along with links to disclosure options, can be found here.
