HMRC has recently published factsheet CC/FS17, 'Compliance Checks – Higher penalties for Income Tax and Capital Gains Tax involving offshore matters'.
The factsheet explains what an offshore matter is, when HMRC may charge a higher penalty and how HMRC calculate the penalty.
What is an offshore matter?
An offshore matter is described as an inaccuracy, failure to notify or deliberate withholding of information that relates to any of the circumstances listed below and results in a potential loss of tax that should have been reported on a person's tax return:
- income arising from a source in a territory outside the UK; or
- assets situated or held outside UK territory; or
- activities carried on wholly or mainly outside UK territory.
When HMRC may charge a higher penalty
A penalty in excess of 100% may be charged by HMRC where:
- there is an inaccuracy in a return or document;
- a failure to notify a charge to tax;
- the deliberate withholding of information where a tax return is more than 12 months late.
How the penalty is calculated
The range of penalty is determined by the region in which the income or gain arises, referred to as the 'territory' of which there are three categories:
Category 1
These territories have agreed an automatic exchange of information with HMRC and the maximum penalty is 100% of the tax. This category includes the Cayman Islands, Cyprus, Guernsey, Ireland, Isle of Man and the USA.
Category 2
Although these territories will exchange information it is only done upon the request of HMRC and the maximum penalty is 150% of the tax. Territories that are not listed in any of the other two categories fall within category 2.
Category 3
These territories have not agreed to share information with HMRC and the maximum penalty is 200% of the tax. Countries in this category include Brazil, Monaco and Panama.
A list of the territories and their relevant categories can be found at http://www.hmrc.gov.uk/news/territories-category.htm
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