In a further ramping up of powers afforded to HMRC, legislation contained within Finance Act 2019 extended the time limits for assessing income tax capital gains tax and inheritance tax where those liabilities relate to an offshore issue. The purpose of this legislation is to extend the time limit to 12 years (from 6 years) for which HMRC can recover tax involving an offshore tax matter where the taxpayer has acted carelessly or made a mistake with their tax affairs.
The key principles of the legislation are as follows:
- The 12 year time limit only applies for income tax, capital gains tax and inheritance tax involving offshore matters or offshore transfers;
- The 12 year time limit only applies where the lost tax involves an offshore matter or offshore transfer which makes the tax loss significantly harder for HMRC to identify;
- For income tax and capital gains tax involving the tax years 2013/14 and 2014/15 only, an assessment to recover unpaid tax can be made within 12 years of the end of the relevant tax period, i.e. by 5 April 2026 for the 2013/14 year, if the under-assessment of tax is due to the careless behaviour of the taxpayer or a person acting on their behalf;
- For income tax and capital gains tax involving the years 2015/16 and onwards, an assessment to recover unpaid tax can be made within 12 years of the end of the relevant tax period, i.e. by 5 April 2028, for the 2015/16 year. The crucial distinction to 2015/16 et seq and earlier years is that the authority to assess for 2015/16 applies whether the taxpayer took reasonable care or was careless;
- The 12 year offshore assessing time limit does not apply to years prior to 2012/13;
- The 20 year assessing position will still apply where the taxpayer behaviour is deliberate;
- The 12 year time limit does not apply for income tax and capital gains tax where before the 4 and 6 year time limit for making the assessment, HMRC received relevant overseas information, via mandatory automatic exchange procedures, from which they could reasonably be expected to become aware of the lost tax, and
- It was reasonable to expect HMRC to have raised an assessment before the time limit.
Whilst these are welcome safeguards, taxpayers generally do not know whether HMRC holds offshore information about them. In addition, it is likely that the Courts will need to consider what is ‘reasonable’ in this context.
How can WLH Tax help
Please contact WLH Tax should you require more information concerning this legislation or for a confidential discussion.