Britons' overseas tax knowledge gaps swell HMRC’s haul to £6.5m

Contractors who make innocent tax mistakes when contracting overseas are among the Brits being caught up in a £6.5million crackdown between HMRC and its foreign counterparts.

So on top of intentional avoidance, misunderstanding about working abroad has helped multiply by seven times the Revenue’s haul from data requests to overseas tax offices -- from £796,835.

This yield in 2013 was from ‘joined-up’ tax enforcement whereby HMRC gets data from its foreign partners (51 new countries came on stream in 2018), but partly thanks to such information exchanges maturing, the haul now stands at a hefty £6.5m.

'Incorrect assumption'

Disclosing this 716% leap over the five-year period, Access Financial said it was triggered by 709 data requests by HMRC to non-UK tax offices. But not all the resulting £6.5m was due to deliberate avoiders.

“There is an incorrect assumption that people cease to be tax resident in the UK when they work abroad but very often a UK tax liability will arise on foreign earnings,” the firm said.

“A significant proportion of British contractors who are working abroad, or have worked abroad recently, are likely to have not paid the correct amount of tax. The likelihood of HMRC catching up with them is much greater now than at any time in the past.”

'Greater risks'

Much like loan charge or IR35 reform-induced schemes that have sprung up in the UK, ‘overseas solutions’ sellers will have landed some British contractors with tax debts.

And due to such sellers likely to be preying on post-Brexit income fears, just as data exchanges between tax jurisdictions turn systematic, contractors face “ever greater risks”.

“Offshore tax avoidance schemes are still being touted and these can be tempting to contractors operating in continental European markets, where the tax burden can be significantly higher than the UK,” added Access Financial managing director Kevin Austin.

“The promotors of these schemes often claim to have HMRC’s approval, but HMRC never endorses schemes, making any such claims fraudulent.”

'Tempted'

Much like their UK variants, the schemes can also claim to be ‘QC-approved’ but more common is the promise of high levels of take-home pay – ‘retain 90% of your income’ for example.

“People tempted by these schemes need to clearly evaluate the risks, which are much greater now than they have been in the past,” said Austin.

“If HMRC deems a scheme to be non-compliant, it can demand backdated tax, penalties and interest. HMRC now also has the power to compel taxpayers to pay their potential tax liabilities up front, instead of having to chase them through the courts.”

The warnings come after a chartered accountant said HMRC’s current focus was on reducing losses from undeclared income or gains arising offshore, often by it using Connect, which has access to data including from the British Overseas Territories, 60 OECD countries, government agencies and financial companies.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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