As part of the global fight against tax evasion, the major world economies (aside from the USA) have agreed a system of annual automatic exchange of financial information about individual taxpayers’ bank accounts and other assets. This is known as the Common Reporting Standard (CRS).

The USA has it‘s own legislation called The Foreign Tax Account Compliance Act (FATCA) and international agreements based on this.

Reporting under the CRS started in 2017 for some countries and others will start reporting in 2018.

What does this mean for Cogent clients?

Many Cogent clients are Britons who have worked overseas for part of their career. Often they have had foreign earnings paid into a foreign bank account and, when they return to the UK, they have left the money overseas as a nest egg and not considered that there might be UK tax implications. After all, they have paid appropriate foreign tax on that money while they were not UK resident so it is nothing to do with the UK tax man – Right? – WRONG.

Other Cogent clients originate from overseas and, while working in the UK, continue to own income-producing assets in their home country. These might be shares producing dividends, interest-paying bank accounts or possibly rental income from letting out their home. If they are paying tax at home then it is nothing to do with the UK tax man – should be Right? – could be WRONG.

But some clients have their money in the Isle of Man/Channel Islands/Gibraltar – they are part of the UK, aren’t they? – WRONG.

These are all overseas territories – and penalties charged on previously-undisclosed tax liabilities will always be charged at the higher penalty rates that relate to overseas assets.

We have already had three clients approached by HM Revenue & Customs (HMRC) with the suggestion that they have failed to include income from foreign assets on their UK tax returns. In all three cases, it is apparent that these letters were based on actual information.  The clients did have overseas bank accounts, but did not appreciate that the income from them was taxable in the UK.

So, what should clients do?

If you are subject to UK income taxes but have not been including income from overseas assets on your UK tax return, you need to collect together information on your excluded income for the last several years and then take advice about whether you should voluntarily disclose this information to HMRC.

But if the tax authorities haven’t caught up with clients yet, why should they disclose this information now? – This is where the Requirement to Correct (RTC) comes in.

This is a new requirement written into tax law from 2017 which obliges anyone with undisclosed UK tax liabilities involving overseas assets or funds to notify HMRC by 30 September 2018.  Failure to disclose the appropriate information by 30 September will result in being liable to significantly higher penalties than apply at present. Currently, the penalties could be as low as 20 per cent of the tax (on top of the tax and late payment interest). In comparison, penalties for liabilities notified after 30 September are likely to be at least 100 per cent of the tax (on top of the tax and late payment interest).