Yesterday HMRC issued a discussion document seeking views on how it is able to increase taxpayer awareness and reduce errors that relate to offshore matters.

In recent years HMRC has increased its focus on offshore non-compliance, primarily in the form of the Requirement to Correct and the issuing of ‘nudge letters’ following the receipt of information received under the Common Reporting Standard (CRS).

In addition, it was announced as part of the budget that HMRC would be issuing protective assessments to individuals who are in the process of making a disclosure using one of the relevant disclosure services (e.g. the Worldwide Disclosure Facility).

Protective Assessments

A ‘protective assessment’ is defined in HMRC’s manual (EM2000) as an assessment that is made shortly before a time limit expires. The intention from HMRC’s perspective is to keep the matter open until the enquiry is complete.

A further complexity arises due to the extended time limits forming part of the Requirement to Correct legislation.

Requirement to Correct (RTC)

The Requirement to Correct was introduced from 1 October 2018 and any individual who had not regularised their offshore tax non-compliance by 30 September 2018 would potentially fall into its scope.

The introduction of the RTC brought significantly higher penalties for offshore non-compliance in the form of Failure to Correct penalties. The minimum penalty under Failure to Correct is 100%.

The RTC will only apply to any offshore non-compliance in the tax years prior to 6 April 2017 (unless a disclosure was registered into before the 30 September 2018). In addition, the RTC will only apply if HMRC was able to raise an assessment to recover any unpaid tax on 6 April 2017. The normal assessing rules are dependent on the individual’s behaviour that gave rise to the non-compliance.

Behaviour Assessing Period
Reasonable Care 4 years
Careless 6 years
Deliberate (and/or concealed) 20 years

Classification of an individual’s behaviour is complex and advice should be sought here. In addition there are further nuances, such as time limits for failure to notify or following the death of an individual.

An individual’s behaviour is important in the context of a disclosure as it has a material impact on both the assessing period and penalty rate. The assessing period is important as it relates to a protective assessment as HMRC will not be able to raise an assessment for any tax year outside it.

The RTC extends the above assessing periods.

HMRC therefore must issue a ‘protective assessment’ in respect of these tax years before 5 April 2021 (as otherwise these earlier years would not be within time for a discovery assessment).

If you would like further information on the Requirement to Correct, please click here.

What to do if you receive a ‘Protective Assessment’?

If you receive a ‘protective assessment’ then you are likely in the process of making a disclosure to HMRC. If you are using a qualified advisor to assist with your disclosure, you should make them aware of the assessment.

The letter will state the relevant years HMRC is seeking to protect by raising the assessment, as well as stating the tax that is due for that year.

Should you disagree with any of the information contained within the ‘protective assessment’ you are able to appeal to HMRC within 30 days.

If you are unsure as to whether the letter you received is a ‘protective assessment’, HMRC has provided an example. If you would like a copy of this letter or believe this may apply to you, please contact Hetal Sanghvi, Bradley Gabriel or any member of the Tax team.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

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