What is the difference between foreign, offshore and overseas income?
These terms are used interchangeably, and they all mean the same thing.
From HMRC’s perspective, foreign, offshore and overseas income is anything from outside England, Scotland, Wales and Northern Ireland. The Channel Islands and the Isle of Man are classed as foreign for the purposes of United Kingdom (UK) tax.
An offshore matter is one where tax is charged on, or relates to:
• income arising from a source in a territory outside the UK
• assets situated or held in a territory outside the UK
• activities carried on wholly or mainly in a territory outside the UK
• anything having effect as if it were income, assets or such activities is also included, if it arises from outside the UK
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 used. These rules are complex, so it is best to seek advice from an expert in this area.
If you are not UK resident, you will not have to pay UK tax on any non-UK income. However, you should always check that you are aware of and abide by the tax rules of the country where you are resident.
How do I know if I am resident in the UK for tax purposes?
Whether you are a UK resident usually depends on how many days you spend in the UK in the tax year (i.e. from 6 April to 5 April in the following year).
If you spend 183 days or more in the UK in a tax year, you will be resident in the UK for that year, in almost all cases. Even if you spend fewer than 183 days in the UK in a tax year, it is still possible for you to be resident in the UK. You must follow the rules set out in the
Statutory Residence Test to determine this.
What if I have already paid tax in another country?
You may be taxed on your foreign income by the both UK and by the country where your income is from.
However, you can usually claim Foreign Tax Relief to get some, or all, of this tax back. How you claim depends on whether your foreign income has already been taxed.
What information does HMRC receive about offshore or foreign income?
If you are a UK tax resident and you hold a bank account in another country, then it is likely that 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).
HMRC communicates and shares data with financial institutions and overseas tax authorities using the Automatic Exchange of Information.
What does HMRC do with information from other countries?
Where the information HMRC receives does not match the income declared on an individual’s self-assessment return, HMRC sends ‘nudge’ letters or opens enquiries.
How many years can HMRC go back for offshore matters?
Since 2019, HMRC has 12 years to raise assessments for offshore matters, even if the taxpayer has made an innocent error. For cases in which there has been deliberate behaviour, or a failure to notify, the time limit is 20 years.
What are the penalties for offshore tax non-compliance?
The penalty regime relating to offshore matters is complicated.
For 2016/17 and later years, the penalty rate for inaccuracies depends on whether the disclosure was prompted or unprompted, the quality of the disclosure, the behaviour leading to the inaccuracy and the offshore territory. Where the income or gain arises in a tax haven or high-risk country, the penalties are likely to be higher.
Requirement to Correct (RTC) and Failure to Correct (FTC) penalties were introduced on 1 October 2018. For liabilities relating to offshore matters in 2015/16 and earlier periods, the maximum penalty is 200% of the tax.
I have not paid the right amount of tax. What should I do?
If you have underpaid tax from previous years, you can bring your tax affairs up to date by making a disclosure to HMRC. There are a number of disclosure facilities available. Choosing the right one will depend on what has happened and why it happened.
What should I do if I have deliberately not paid the right amount of tax?
If you have deliberately underpaid tax, you should consider making a disclosure to HMRC under the Contractual Disclosure Facility (CDF).
What is a voluntary disclosure?
If you notify HMRC that you want to make a disclosure before HMRC starts an investigation into your tax affairs, or before HMRC writes to you advising you to check your tax position, your disclosure will be treated as a voluntary disclosure.
You can make a voluntary disclosure using the Digital Disclosure Service, Worldwide Disclosure Facility or Contractual Disclosure Facility.
Making a voluntary disclosure will often lead to reduced penalties being charged.
How do I make a disclosure using the Worldwide Disclosure Facility?
The first step is to notify HMRC that you want to make a disclosure. You should do this as soon as possible. Initially, you only need to tell HMRC that you want to make a disclosure. You do not need to give any details of the undisclosed income, or the tax you believe you owe.
You will then have 90 days to make a disclosure. During this period, you will need to review the undeclared income and gains and calculate your tax liability.
You will also need to consider whether any penalties apply and calculate late payment interest. Our tax investigation specialists at inTAX can guide you through every step of this process.
When you submit your disclosure to HMRC you should pay the amount you owe.
What happens if I cannot pay everything I owe?
If you cannot afford to make a payment in full to HMRC, there are options available. We can discuss your individual circumstances with you and give you the appropriate advice.
Should I get professional help before making a disclosure?
Unless it is a very simple matter, it is advisable to get professional help from a tax investigation specialist. Offshore matters are usually complex. Our tax investigation specialists will help you review your tax position, including the number of years to be disclosed, dealing with double taxation agreements and reviewing the penalty position.
It is important that the disclosure covers everything that it should do, but not things that are out of time.
