ICAS, the global professional body for chartered accountants, commented on HMRC’s ideas to help taxpayers get their tax law abroad.
Sharing HMRC data with taxpayers and agents would be useful and information on tax returns, and contacting taxpayers and agents earlier in the process would also be helpful, explained Susan Cattell, Tax Technical Policy Officer. , in an information note.
The HMRC released the discussion paper “Helping Taxpayers Obtain Foreign Tax Right†on “Tax Day†2021. It focuses on unintentional non-compliance, rather than avoidance or tax evasion abroad.
The introduction notes that this can be caused by a variety of factors, including:
- Not being aware of offshore tax obligations.
- Guidance and communications relating to “extraterritorial income†are not relevant or clear.
- Rely on anecdotal evidence or outdated advice.
- Do not seek help and support until the tax return is due.
- This aligns with comments from ICAS members on why taxpayers often do not get the proper advice and make mistakes in offshore tax matters.
What could HMRC do to improve compliance?
In the paper, the HMRC presented some ideas on how it could help taxpayers obtain overseas tax law, divided into three areas:
- How HMRC could use the data in different ways to help taxpayers get their tax law.
- How HMRC could better support taxpayers with their offshore tax obligations.
- How HMRC could work with agents and intermediaries to help promote offshore tax compliance among taxpayers.
ICAS participated in two of the workshops organized by HMRC to discuss their suggestions and submitted a response to the discussion paper.
Overall, the professional body said it would certainly be helpful for HMRC to develop processes and interventions to help taxpayers get their returns properly – rather than waiting to tackle issues further. late.
Some of the key points from ICAS’s response are presented below:
Using data to promote offshore tax compliance – digital prompts
HMRC receives increasing amounts of offshore data each year, in particular under the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA). Rather than just using this data to detect non-compliance after the event, HMRC clearly has an opportunity to use the data earlier in the registration and self-assessment process to try to raise awareness offshore tax obligations and avoid common mistakes.
Much of unintentional non-compliance occurs because taxpayers do not understand the rules and do not realize that they have to report their income or earnings abroad to HMRC. They also may not realize that they need to let an existing agent know – or that they should get advice if they don’t have an agent.
It would be helpful if HMRC signaled to taxpayers the obligation to notify accountability – with specific reference to the need to consider foreign sources. It would also be helpful to include prompts in tax return notices – noting that according to information held by HMRC, taxpayers have assets or income abroad and UK tax obligations may result. result. All prompts should be visible to authorized agents, which might currently be difficult for prompts through personal tax accounts as agents would not have access to them. Agents seeing prompts will make them more efficient than relying solely on recipient taxpayers to raise assets or income offshore with their agent.
Some unrepresented taxpayers might decide to take advice upon receiving a prompt, but some will likely need HMRC’s support. Flagging advice in prompts would be helpful, but HMRC hotlines should also be able to deal with taxpayers who ask questions overseas in response to prompts.
The earlier prompts can be included in the tax filing process, the better, so taxpayers have more time to seek advice or help. However, HMRC’s additional suggestion for online prompts in tax returns could also be helpful – especially if they referred to specific countries and (as with previous prompts) made it clear that it might be necessary to report. .
Using data to promote offshore tax compliance – transparency
Agents would like HMRC to share the information it has received (for example, via CRS) about their clients’ income and offshore assets. As noted in the document, problems can arise as much of the data received by HMRC is reported for the calendar year rather than the tax year. There are also often inaccuracies in the data provided to HMRC via CRS.
Transparency, on the part of HMRC, through sharing data with agents (and taxpayers) would help ensure correct entries in tax returns – and give agents / taxpayers the opportunity to provide explanations for apparent inconsistencies. , or to report inaccuracies in the data of third parties. It would also reduce the number of reminder letters issued by HMRC where the returns were in fact correct.
ICAS’s response also addresses other issues related to inaccuracies in third-party data, particularly in the context of possible pre-filling of data in tax returns. Procedures and safeguards should be put in place to ensure that taxpayers can correct third party data.
Making life easier for taxpayers – HMRC communications
HMRC research has shown that taxpayer awareness of offshore tax obligations is low. The working paper highlights a possible confusion between taxpayers resulting from the use of different terminology in relation to international tax matters. ICAS agrees that some taxpayers may think that HMRC’s “offshoreâ€, “foreign†and “overseas†tax communications are aimed at high net worth taxpayers (and tax evasion or evasion). This is perhaps the most likely case with “offshore†which is often used in media reporting in conjunction with tax havens and tax evasion or evasion.
As a result, many taxpayers who inadvertently fail to comply might be less likely to view a communication as relevant to them if it refers to “offshoreâ€. “International†tax might be a more neutral term for HMRC to use. There are some sensible suggestions in the document for areas of offshore tax where HMRC should focus its communications efforts.
When the target audience for HMRC communications is based overseas, there have been issues of awareness of changes in legislation – as illustrated by the experience with non-resident CGT. HMRC should have provided more targeted communications on NRCGT, for example, direct communications to people who had become non-residents but had income from UK property.
When HMRC knows that a change will affect a particular group of taxpayers or industry, it should seek to target communications – either directly to those most likely to be affected (which should have been possible with NRCGT) or more broadly, for example, through publications, professional bodies, websites and social media that may be viewed by those affected.
Work with intermediaries to ensure offshore tax compliance
HMRC could work with intermediaries such as financial institutions and investment managers to improve the information they provide to their clients. Member comments indicate that some taxpayers have difficulty determining which boxes on the tax return to use for different types of income – for example, distinguishing between bank interests and mutual fund interests. This makes data reconciliation more difficult. Intermediaries could help indicate how to report income received.
There are also problems of presentation and accessibility of information (in particular the income to be declared surplus) – and problems arising from the different tax treatments of returns on investments. For example, an item treated as a return on capital in one jurisdiction may be treated as income in the UK. Improving communications and the provision of information by financial institutions and investment managers could help taxpayers achieve good returns.
