UK government plans to extend the time limits for assessing cases involving offshore tax matters to 12 years have been criticised by accountants.
The UK government announced plans for HM Revenue & Customs to have more time to investigate cases where individuals have potentially made mistakes relating to offshore tax matters. Current assessment time limits of four or six years have been deemed not long enough to establish the facts and determine the amount of tax due.
But according to The Low Incomes Tax Reform Group (LITRG) there are “serious concerns” as taxpayers who have made “innocent mistakes” will become caught up in unnecessary extended investigations.
Robin Williamson, technical director of LITRG, said: “If HMRC are struggling to deal with the number of cases that involve offshore tax, that should be treated as a resource matter rather than an excuse to reduce taxpayer protection.”
Currently, if a taxpayer has taken reasonable care then HMRC may raise an assessment up to four years after the end of the tax year. The time limit is extended to six years if the taxpayer has been deemed as careless.
Those who have evaded tax deliberately face an assessment window of 20 years in any case and are unaffected by the changes.
Therefore, the changes affect even those taxpayers who have conducted their financial affairs in good faith and are unaware they may have an undisclosed liability, according to LITRG, with the proposals adding a “further layer of complexity” to the rules on time limits
The Chartered Institute of Taxation also has condemned the proposal as “wrong in principle”
“There is no evidential explanation in the consultation document of the more detailed rationale behind the measure (that it takes longer to investigate, or that the extra time needed is six years for careless errors and eight years for innocent errors),” the Institute said.
“Threatening letters from HMRC cause a great deal of unnecessary distress to vulnerable taxpayers, even if the amounts involved are trivial,” LITRG’s Williamson added. “But these proposals will make such letters more commonplace. An unrepresented taxpayer will often struggle to defend themselves, faced with complex rules on the taxation on offshore investments and having to obtain information which is so old.
“This is an issue which affects pensioners and migrants in particular, who are each more likely than other low-income groups to have offshore investments.
HMRC defended its decision and, according to reports said that it had not made its decision just yet.
According to a report in the FT, a spokesperson for HMRC, said that it was “considering the responses we have received and we will publish a consultation response document in due course”.
Draft legislation on the matter is expected to be rolled out by HMRC this summer.