HMRC says it is extending the time limit because it can take much longer to establish the facts about offshore transactions, particularly if they involve complex offshore structures, compared to domestic cases. More time is needed to address situations where the current assessment time limits of four and six years for offshore non-compliance are not long enough to establish the facts, and determine and assess the amount of tax due.

The department is seeking feedback on aspects of the design principles for the new legislation, which is set to be introduced in the 2018 to 2019 Finance Bill, to take effect from April 2019.

Under the proposals, an assessment time limit of 12 years will apply in cases of mistakes or non-deliberate errors involving offshore tax. The time limit for assessing unpaid tax in cases of deliberate non-compliance (including where offshore income, gains and chargeable transfers are involved) will continue to be up to 20 years after the end of the tax year or relevant period.

The extended time limit will apply to the taxes that are currently in scope for the requirement to correct rules and other civil measures tackling offshore tax evasion, so will cover income tax, capital gains tax (CGT) and inheritance tax (IHT).

In addition, HMRC say given that many offshore structures involve corporate entities, the government is considering, and would welcome views on, applying this proposal to corporation tax.

The consultation asks for views on defining ‘offshore’ and also on the implications of extending the tax assessment period for the penalty regime. The time limits for assessing penalties are based on when a tax assessment is made, so an increase in the tax assessment time limit will mean that more periods are also subject to penalties in appropriate circumstances.

According to its tax impact assessment, HMRC expects to collect an additional £5m in tax in 2021/22 and £10m the following year.

HMRC has reiterated warnings that anyone with offshore assets should make sure they disclose them, or risk facing tougher penalties which come into effect from 1 October. 

David Richardson, director general for customer strategy and tax design at HMRC, said: ‘These new penalties are part of the government’s drive to ensure there are no safe havens for taxpayers that seek to evade paying tax. HMRC already holds a vast amount of data on offshore assets, and this is growing all the time.

‘The majority of taxpayers with offshore assets already disclose them in line with UK law so have nothing to worry about, but time is running out for the minority of tax dodgers.’

The consultation on the implementation of a new minimum time limit of 12 years for assessing offshore tax, announced at the Autumn Budget 2017, closes on 14 May.

Consultation on extension of offshore time limits is here.

Report by Pat Sweet