What is particularly interesting about the latest set of nudge letters regarding offshore liabilities is that HMRC now only has until 5 April 2021 to raise assessments on tax liabilities back to 2011/12, where taxpayer behaviour was deemed careless, and 2013/14 where the taxpayer is deemed to have taken reasonable care.
After 5 April 2021, HMRC’s assessing powers move to the new 12-year time limit which was introduced as part of the Finance Act 2019. This legislation allows HMRC 12 years to raise an assessment where there is an offshore matter, or there is an offshore transfer which makes the loss of tax significantly harder for HMRC to identify, and no UK tax has been paid.
Under the new rules, as of 6 April 2021 the earliest HMRC will be able to assess unpaid offshore tax will be 2013/14 for careless errors, and 2015/16 for errors where the taxpayer has taken reasonable care. Whilst this is not 12 tax years, these years are the “lines in the sand” from which HMRC can assess. The 12-year offshore assessing time limit does not apply to earlier periods.
We understand therefore that HMRC is trying to rapidly raise assessments prior to 5 April 2021 on taxpayers who have made a disclosure of offshore liabilities, but this has not yet been formally agreed, and in situations where a HMRC officer believes they have enough information about an offshore liability to raise the assessment for the earlier years.
These latest nudge letters are unlikely to provide HMRC with enough time to determine whether an offshore tax liability has been missed from a taxpayer return, and if so, what the extent of this missed liability is. HMRC is therefore unlikely to be able to raise protective assessments by 5 April 2021 and will only be able to assess back to 2013/14 from 6 April 2021 under the new 12-year limit.
If a taxpayer receives a letter from HMRC, either enclosing an assessment or requesting information about overseas assets, income, or gains, then they should consult their adviser to ensure action is taken within the required time periods. If no action is taken in respect of an assessment, then interest and penalties may be charged.