• Where any disclosure should be directed within HMRC;
• What years the disclosure relates to and whether any can be validly excluded from the calculations;
• How to make the disclosure; and
• How to mitigate any penalty implications should they arise.
If, after due consideration, the taxpayer is satisfied there is nothing more to disclose, it may be appropriate and prudent to submit a response to HMRC’s letter, carefully crafted for the specific circumstances.
This could help mitigate against further unwarranted or unnecessary scrutiny from HMRC, which might otherwise be the case if no reply is submitted at all.
Logic would suggest that there is a large number of UK taxpayers with overseas bank accounts that attract no interest and contain only modest sums – for example, accounts held to help service a holiday home in Spain or is maintained by overseas nationals living in the UK.
It is hoped that HMRC will identify these accounts from their common characteristics to avoid wasting time on trivial matters rather than pursuing overseas non-compliance, which the system would be better employed to do.
Unfortunately, when the first batch of ‘experimental’ letters was issued in 2017 (following the receipt of data from 49 countries that were early adopters of CRS) there appeared to be more focus on the low hanging and low value fruit at the bottom end of the spectrum.
Time will tell as to whether HMRC has learned from this, and will instead focus on the largest account balances or highest portfolio values in the first instance.
At the other end of the spectrum, HMRC has made no secret that it is bolstering its investment in compliance, and in particular the number of officers being recruited or redeployed to tackle tax evasion and criminal prosecutions.
There is undoubtedly a strong belief that a lot of deliberately undeclared tax remains hidden in offshore structures despite previous projects aimed at revealing these assets, such as the Liechtenstein Disclosure Facility, which yielded far less than HMRC initially envisaged.
Furthermore, since September 2018, HMRC has been operating ‘failure to correct’ penalties, with a potential minimum penalty of 100 per cent of any underpaid tax and maximum penalties of 300 per cent of the underpaid tax.
With such high penalties, one of the first questions that will be addressed by any tax disclosure specialist is why the underpayment has arisen so that it can be compartmentalised in one of the behaviour silos.
