UK and International Tax news
HMRC Condoc On Extension Of Offshore Time Limits
Thursday 22nd February 2018
HMRC has recently issued a consultative document on proposals to extend time limits to assess cases involving offshore income, gains and chargeable transfers.
Existing assessment time limits depend upon both the type of tax being charged and the reasons for any errors or failures that might result in the loss of that tax.
For income tax and capital gains tax purposes, the time limits are ordinarily within four years after the end of the tax year to which the assessment relates. The time limit is six years if the loss of tax was brought about by carelessness, and 20 years if the loss of tax was brought about deliberately by the taxpayer.
Where there is a loss of tax due to the taxpayer’s failure to notify their liability to those taxes, the time limit is 20 years unless the taxpayer had a reasonable excuse for the failure and notified HMRC without unreasonable delay after the excuse ended. In those circumstances, the four year time limit applies.
There are also special time limit rules that apply in particular circumstances, for example, where a taxpayer fails to disclose their use of an avoidance scheme notifiable under the DOTAS rules. HMRC has 20 years in which to assess any tax loss relating to the scheme in the same way as for a failure to notify case.
In the case of deceased taxpayers, any assessment has to be made within four years of the end of the year of assessment in which the taxpayer died. However, no assessment may be made for a year of assessment ending more than six years before the date of death. This is the case even where the assessment involves a loss of tax due to careless or deliberate behaviour, or the failure of the deceased to notify chargeability.
For corporation tax purposes, the same time limits apply but are determined by reference to the end of the accounting period rather than the tax year.
In the case of a loss of inheritance tax brought about by an error in the IHT account and where payment has been made and accepted in full satisfaction of the tax due, the time limits for proceedings to be brought for recovery of the tax are four years from the later of the date on which the last payment was made and accepted, or the date on which the tax or last instalment became due, six years where the error is attributable to careless behaviour, and 20 years where the error is attributable to deliberate behaviour.
Where an inheritance tax account has not been duly delivered, or the payment of the attributable tax has not been made and accepted, the time limit is 20 years from the date of the chargeable transfer unless the loss of tax is brought about deliberately. In deliberate cases, there is no time limit.
The new Requirement to Correct rules, contained in Finance (No 2) Act 2017, have extended the time limits for assessing IT, CGT and IHT related to offshore non compliance, so that tax that is assessable on 6 April 2017 will remain assessable until 5 April 2021, i.e. six years rather than four years for non offshore compliance.
In addition to the above time limits, there are various safeguards that can apply in respect of assessments. For example, HMRC’s ability to make discovery assessments for IT and CGT is restricted where a tax return has been delivered for that year. This includes no assessment being possible where an error or mistake in a return reflected practice generally prevailing at the time the return was made. A similar rule applies for IHT purposes.
In the Autumn Budget 2017, the government announced that the assessment time limit for non deliberate offshore tax non compliance will be increased to at least 12 years after the end of the relevant tax year or relevant period. Where there is deliberate behaviour, the current time limit of 20 years will remain.
The consultation sets out the design principles for the new legislation, including the scope, commencement and transitional provisions, and invites comments on certain aspects of the design by 14 May 2018.
If you would like further information on the latest condoc, please contact Keith Rushen on 0207 486 2378.