People with non-domiciled status living in the UK have less than a week to elect to join HMRC’s alternative reporting regime, or see the full details of their offshore accounts, trusts and companies shared with HMRC, says Pinsent Masons, as the government ramps up its attack on tax avoidance and evasion
HMRC is likely to start investigations into those who fail to opt out of new rules as soon as the new rules come into force.
The new UK rules were introduced to clamp down on overseas tax avoidance and also underline compliance issues around the US Foreign Account Tax Compliance Act (FATCA).
From September 2016, financial institutions in Crown Dependencies or British Overseas Territories will have to share non-doms’ financial details with HMRC.
However, if non-doms elect to join HMRC’s alternative reporting regime, offshore financial institutions will only have to report the details of accounts and trusts which have remitted cash to the mainland UK and not other assets.
The deadline for non-doms to notify HMRC of their electing to use the alternative reporting regime is May 30 2015.
Jurisdictions covered by the rules include a number of significant overseas financial centres. The Crown dependencies are the Isle of Man, Guernsey, and Jersey; and the British Overseas Territories participating in the information exchange are Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Montserrat and the Turks and Caicos Islands.
Paul Noble, tax director, Pinsent Masons said: ‘Non-doms who fail to act quickly will lose a great deal of anonymity and potentially make themselves vulnerable to lengthy, in depth tax investigations.
‘In many cases these investigations will be unnecessary, and have the potential to generate a lot of disruption, even for taxpayers whose tax affairs are compliant.’
There are pitfalls with the new reporting regime, warns Pinsent Masons. There is a time lag between the deadline for electing to use the alternative reporting regime and the exchange of information taking place. The information due to be exchanged in September 2016 will cover calendar years 2014 and 2015.
Non-doms who miss the deadline to join the alternative reporting regime will still have the opportunity to disclose any ongoing non-compliance to HMRC.
Noble said: ‘HMRC will be able to use the additional FATCA information to launch investigations. The level of detail that offshore financial institutions will have to disclose about their clients far exceeds that required in a normal UK tax return. For example, FATCA requires the disclosure of the balances held in each account.
‘Even if the information that HMRC receives through FATCA does not demonstrate that a non-dom has evaded tax, it could still be used as the basis amount to launch investigations into non-doms’ finances.
‘Indeed, most of this information will be irrelevant to HMRC but they will still have access to it, and will seek to use it to their advantage.
‘Advisers should be recommending to any non-dom clients that they elect to the alternative reporting regime as soon as possible.’
It is also worth bearing in mind that the Liechtenstein Disclosure Facility (LDF), which allows non-doms to ‘come clean’ about any tax avoidance they have engaged in and, in exchange, gain the right to avoid criminal prosecution, will be closed at the end of 2015, earlier than originally anticipated.
‘There is still time however for anyone whose tax affairs have got out of hand to inform the Revenue while the current rules are still in place,’ explained Noble. ‘This will make non-doms and their advisers much better able to manage the situation.’
Those who fail to report offshore funds in Liechtenstein could face criminal charges.
Further information on the offshore disclosure facilities is available here https://www.gov.uk/offshore-disclosure-facilities