The UK's tax collection service HM Revenue & Customs (HMRC) collected more than £560m from offshore tax investigations in 2018/19 tax year - up 72% since new Common Reporting Standard (CRC) were introduced two years ago, according to the latest statistics.
The CRC rules - brought in after 2016/17 which means that more than one hundred countries are now automatically sharing financial information on taxpayers' wealth to expose tax evasion - with ax authorities - including the UK - starting to reap the benefits. In addition undeclared offshore income and gains now face penalties of up to 200% of the original tax owed.
According to Jason Porter, director of specialist UK and expat financial advisory firm Blevins Franks, tax transparency has recently been revolutionised by the global automatic exchange of information under the CRS and many countries, including the UK, have introduced additional measures to check taxpayers are making correct declarations.
"If clients get it wrong - even unintentionally - the penalties can be severe" - Jason Porter, Blevin Franks
"With such heightened worldwide scrutiny, it is more important than ever to make sure clients are paying the right taxes, in the right place, at the right time," said Porter. "If clients get it wrong - even unintentionally - the penalties can be severe. Focusing on the financial assets owned outside the country of residence, the data includes basic details such as name and address, country of tax residence and tax identification number
"Financial information includes the investment income earned over the year such as interest, dividends, income from certain insurance contracts, annuities, account balances and gross proceeds from the sale of financial assets.
"When local tax offices receive CRS information, they can easily verify whether taxpayers have accurately reported their worldwide income on their income tax returns and, where relevant, wealth tax returns."
In 2018, ‘Requirement to Correct' (RTC) rules put the onus on UK taxpayers to regularise their offshore affairs, Porter pointed. Around 18,000 individuals disclosed undeclared offshore tax liabilities before the RTC's 30 September deadline, just before HMRC received a wave of information from the CRS. Now, anyone found to still have undeclared offshore income and gains can face tougher penalties of up to 200% of the original tax owed.
"Although the deadline has passed, HMRC has made it clear that those who voluntarily declare and correct their offshore tax arrangements will be in a much better position than anyone who waits until investigators identify their non-compliance," said Porter.
"Clients who are tax resident in one country and have assets or earn income in another have to take extreme care. They need to follow the local tax rules, the UK tax rules and also the relevant double tax treaty to make sure they are correctly declaring income and paying tax where they should be.
"While cross-border taxation is highly complex, getting it wrong - for any reason - can have serious consequences. Remember, ignorance is no defence; it is the client's responsibility to check they have declared all their worldwide tax liabilities and bring their tax situation up-to-date if necessary."