Do I need to pay tax on offshore income?
If you are resident in the UK and have income arising elsewhere in the world, it is likely that you will need to declare it in the UK.
There are some special rules for non-domiciled individuals i.e. those who are resident in the UK, but not domiciled here – typically because they were born elsewhere in the world. For those individuals, the remittance basis can be claimed. The non domicile tax rules are complex, so if you believe they are relevant to you, then you should seek specialist advice from experts, such as the inTAX team.
How do I know if I am resident in the UK for tax purposes?
From 6 April 2013 onwards, the UK has a Statutory Residence Test which you can use to determine your tax residence.
Broadly, your residence depends on how much time you spend in the UK in each tax year and what connections you have with the UK.
If you have been in the UK for 183 or more days in a tax year (i.e. from 6 April to 5 April) you will be UK resident, so you do not need to consider the Statutory Residence Test.
What information does HMRC receive about offshore income?
If you are a UK tax resident and you hold a bank account or a property in another country, then it is likely HMRC will receive financial information about you. This will include details about account balances and sums paid to accounts (for example, interest and dividends, or from the sale of investments or properties.)
HMRC communicates and shares data with financial institutions and overseas tax authorities using the Automatic Exchange of Information facility.
How can HMRC challenge my tax residence or tax domicile claims?
HMRC receives data from many sources and, if they suspect that you have miscalculated your UK day count, or not declared your UK ties, then they can challenge your tax claims and seek to collect back taxes.
How far can HMRC go back in tax residence or tax domicile cases?
If HMRC can demonstrate that you have deliberately understated your income or gains, then they can go back 20 years and charge penalties at up to 200% of the additional tax.
If the errors discovered arise from a mistake, rather than a deliberate act, then HMRC can go back 6 years and again they can charge penalties for your careless behaviour.
Even if you took reasonable care in determining your tax residence or tax domicile arrangements, HMRC can recover past taxes for 4 years.
The rules for assessing tax on past years offshore income and charging penalties on offshore income are complex and specialist advice from experts such as the inTAX team would be valuable in most cases.
How can I disclose errors in my tax residence or tax domicile position?
You do not have to wait for HMRC to contact you, as there are various opportunities which allow you to make a disclosure of underpaid taxes.
The most favourable route is likely to be by using the HMRC Worldwide Disclosure Facility, but in some circumstances the Code of Practice 9 route might be the safer option. If you are considering a disclosure, then an early discussion with tax investigations experts such as the inTAX team would be a sensible first step.
