Data from tax authorities overseas help HMRC identify individuals who may be evading tax through offshore assets
The amount of information HMRC has received on UK taxpayers from foreign tax authorities has increased by 48% since 2019, reaching 9.5million disclosures in 2022*, says multinational law firm Pinsent Masons.
The most recent figures available show the amount of information sent to HMRC by foreign tax authorities about UK individuals and entities with offshore assets has leapt from 6.4million disclosures in 2019 and 7.4million in 2020 (see graph below).
HMRC receives data from tax authorities in other countries via what is called the Common Reporting Standard (CRS), which was established by the Organisation for Economic Co-Operation and Development (OECD) in 2014. There are currently 121 countries participating in the CRS, including territories that were previously considered “offshore” tax jurisdictions like Switzerland, Bermuda, the British Virgin Islands and the Cayman Islands.
Financial institutions within participating jurisdictions are required to identify customers who have been recorded as tax resident in the UK with bank accounts or other financial assets held in that participating jurisdiction. Data on those customers, such as their names, addresses and the total value of their offshore assets is submitted by the reporting financial institution to the local tax authority, which then sends it on to HMRC in a bulk exchange of information.
“HMRC is now receiving unprecedented amounts of overseas data to support its ability to identify UK residents who may not have paid all the tax they should,” says Abigail McGregor, Legal Director at Pinsent Masons.
“The increase in disclosures HMRC has been receiving since 2021 can partly be attributed to the expansion of the Common Reporting Standard to the majority of the world’s major economies. Many of those jurisdictions are also smoothing out their reporting systems and are therefore improving their rate of compliance with the standard.”
“HMRC can then use this kind of information, alongside its other data, to identify targets for tax investigations.”
58 countries and jurisdictions committed to the CRS in 2017, the first year of reporting. That figure has now more than doubled to 121 signatories, or 64% of the world’s jurisdictions.
Pinsent Masons says taxpayers wishing to disclose untaxed offshore assets to HMRC can do so through HMRC’s disclosure facilities, either the contractual disclosure facility (CDF) where the behaviour of the taxpayer is deliberate, or the digital disclosure service (DDS). Where taxpayers voluntarily tell HMRC about any unpaid tax, any penalties that arise can be lower than HMRC would levy if the authority discovered it through an investigation.
Adds Abigail McGregor: “Any individuals who have undeclared offshore assets should be paying attention to the increasing sophistication of the CRS and the heightened likelihood that HMRC will find out about those assets.”
“‘Super penalties’ of up to 200% of tax owed can apply if HMRC discovers offshore evasion in an investigation. It’s much better for taxpayers to come forward voluntarily and declare their offshore assets rather than waiting for them to be discovered by HMRC. Those individuals should take professional advice to ensure they understand the implications and go about declaring their assets in the right way.”
Number of disclosures to HMRC on UK residents from overseas financial institutions
