Earlier this year, the UK’s HM Revenue and Customs (HMRC) department made headlines for a consultation on the plans to extend the time limits related to offshore tax investigations. The consultation was announced back in February, with plans to close May 14. During that time, the plans to extend this offshore tax investigation time limit have come under significant fire.
More about the Proposed Extension
The current time limit for investigating offshore-related taxes is four years. However, it is extended to six years in the case of suspected underpayment from carelessness or 20 years in cases of deliberate evasion or dishonesty. Under the proposal, any tax investigations that involve an offshore component would extend to 12 years. In the proposal to extend the time limit, HRMC officials said this extra time was necessary for situations when the time limit of just four or six years was insufficient to determine the facts of the case as well as the amount of tax due.
What Accountants and Other Say About the Proposal
The proposal received a great deal of criticism. Various sources cited multiple accountants and tax experts who saw the extension as alarming and unnecessary.
The Financial Times discussed the matter with Dawn Register, who is a tax dispute resolution partner with BDO. She pointed out that one of the major flaws with the plans to extend the timeline is that it would affect those with offshore connections even if they took reasonable care in completing their taxes. As such, Register and similarly minded individuals said this measure has the potential to severely impact even those with full UK tax compliance. She also expressed concerns that this would lead to unnecessary delays in investigations since tax officials would know they had no time constraints, something that could lead to decreased efficiency and higher costs.
The CIOT (Chartered Institute of Taxation) also expressed doubts about the usefulness of the proposal right from the start. Representatives said that not only had the HRMC not made a sufficient case for this change, it could lead to lack of fairness of taxpayers. CIOT Tax Policy Director John Cullinane pointed out that HMRC currently has more resources than at other times, making it unreasonable to assume it needs more time to investigate transparency with taxpayers than it had in the past.
Accountants have expressed even further concerns that if this measure were approved, taxpayers that are involved in offshore matters would need to keep relevant records for 12 years. Since this is twice as long as the current requirement, it could lead to cost implications, which could hurt the international competitiveness of the UK. The Low Income Tax Reform Group pointed out that this proposed extension would affect not just high-net-worth individuals but also migrants and low-income pensioners.
Plans for the Future
Based on the extensive negative feedback to this proposed change to tax time limits, HMRC is considering all the responses. Officials plan to publish a document responding to the consultations and should be drafting legislation at some point this summer.
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