Autumn Budget 2024: Tackling Offshore Tax Non-Compliance

Within the policy paper ‘Tackling Offshore Tax Non-Compliance’ published shortly after the Budget was announced, Labour made clear that they will intensify efforts to tackle offshore tax non-compliance, specifically targeting high-net-worth individuals (HNWIs) and their complex offshore structures.

The approach outlined within the policy paper signals a zero-tolerance attitude to offshore tax non-compliance and aims to discourage the use of overseas entities to conceal income or assets.

This piece provides an overview of HMRC’s strategic direction.

Tackling offshore tax non-compliance: A summary

In order to close the tax gap (the gap between the amount of tax collected and the amount of tax HMRC believes to be due) the Government is determined to close tax loopholes and hold individuals accountable for undisclosed assets held offshore.

The Government’s chosen strategy aims to target “wealthy customers, corporates they control and other connected entities”. To achieve this, they have announced ‘significant’ additional resource for HMRC and the ‘scaling up’ of compliance activities.

Whilst many focus on tax evasion and avoidance when discussing the tax gap and non-compliance, the reality is the biggest contributor to the tax gap is a failure to take reasonable care. This means that those who unintentionally misreport their liabilities due the complex nature of taxation will be caught by HMRC’s efforts to close the gap.

The policy paper explains new measures for identifying taxpayers who have activity offshore emphasising increased international data-sharing and enhanced reporting and disclosure standards.

Some of the key strategies are set out below:

1. Crypto Assets: Enhanced Tracking Capabilities

One key area of HMRC’s offshore strategy is crypto-assets. Currently, crypto-assets are not covered by the Common Reporting Standard (CRS) and so the information HMRC has in respect of crypto-asset ownership and transactions is limited. From 2026, HMRC will start to collect information under the Crypto-Asset Reporting Framework (CARF) to allow the automatic exchange of crypto-asset information from 2027.

Edwin Coe comment:

CRS has raised concerns over data accuracy, privacy, and regulatory consistency across jurisdictions, so it remains to be seen how the CARF system will deal with those issues -particularly when privacy concerns are amplified in the context of crypto. Disparities in data standards and reporting practices across countries could end up complicating compliance, creating mismatches and increased risk of enquiry.

2. International Cooperation on Offshore Compliance

In line with global tax transparency initiatives, HMRC plans to strengthen its relationships with tax authorities worldwide. By participating in international data-sharing agreements, HMRC will have access to more information about offshore accounts and structures. This development means that non-compliance risks for HNWIs extend far beyond the UK, and clients should prepare for their foreign-held assets to be visible to tax authorities.

Edwin Coe Comment:

High volumes of data from international sources will need processing and analysing. This will increase the level of oversight from advisors to ensure data is managed correctly.

Additionally, geopolitical issues add complexity. In certain regions, taxpayers may have legitimate concerns about sharing information due to political instability, privacy risks, or differing standards of data security.

3. Worldwide Disclosure Facility

The Government is planning to invest in improvements into the Worldwide Disclosure Facility (WDF) to make it easier to disclose offshore income and gains and make payment.

Edwin Coe comment:

Given the complexity of structures used by HNWIs, the WDF in its current form does not always address the unique circumstances of taxpayers with offshore income and gains to disclose. Investing in improvements may increase participation, foster greater compliance and lead to higher revenue recovery while reinforcing taxpayer trust in the system.

Conclusion

If you advise clients with offshore interests, now is the time to reassess their compliance strategy. HMRC’s tools and access to information are only growing, and the risks of non-compliance are increasingly significant.

Taxpayers should expect enhanced scrutiny, and advisers will need to keep up to date with the proposed changes to offshore tax non-compliance.

In this rapidly evolving landscape, early consultation with a tax specialist will help HNWIs meet their tax obligations with confidence.

A copy of the policy paper can be found here.

Our Tax team has considerable experience in advising individuals, family offices, trustees and directors who may be concerned about tax non-compliance. Should you require any assistance, please contact any one of our partners in the Tax team. We are experts in this field and are here to help.

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