HMRC is asking for up to 12 years in which to raise tax assessments relating to offshore income, gains or chargeable transfers. Phil Manley explains why this is unfair for taxpayers.
HMRC has issued a consultation document on extending the assessment time limit for cases concerning offshore income, gains or chargeable transfers. The new maximum time limit for HMRC to issue an assessment will be 12 years, which replaces the previous limits of four (ordinarily) and six years (where careless behaviour has been proven). In cases of deliberate behaviour, the current limit of 20 years will remain in place.
The reasoning provided for the requirement of the new time limits is stated by HMRC as: “This extension of time limits for offshore cases reflects the fact that it can take much longer for HMRC to establish the facts concerning offshore transactions, particularly when a complex offshore structure is involved”.
HMRC further states: “(the information needed in)…cases involving offshore jurisdictions can take longer to obtain compared to domestic cases”.
Taxes in scope
The extended time limit is to apply to all taxes within the scope for the Requirement to Correct, so IT, CGT and IHT will be impacted by the new legislation. Furthermore, HMRC will welcome views on applying the proposal to CT.
The intended commencement dates for the extension of the offshore time limits are from 1 April 2019 for IHT, and 6 April 2019 for IT and CGT. The extension will apply to any year that is still in date for assessment when the new legislation comes into effect.
The impact to the exchequer is negligible until 2021-22 when it becomes £5m, increasing to £10m in 2022-23 (Assessment of impacts in section 5 of consultation).
The obvious concern is that one of the most fundamental principles of the UK tax system is that taxpayers are entitled to certainty over their tax affairs, and any extension to an assessment time limit unquestionably reduces that certainty. At the introduction of the self assessment regime in 1996-97, parliament saw fit to include the safeguard of time limits for enquiries and assessments to provide this certainty.
The most worrying aspect of this consultation isn’t just that the assessment time limit has been extended, but the fact that it is now being set at 12 years.
To put that into perspective, HMRC is stating that to enable them to ‘gather the information needed to understand the tax at risk….’ it may take them up to the length of time it will take my three-year-old daughter to start primary school, complete her entire primary and higher education, complete her GCSEs and start looking for a college or enter work.
Now I’m certainly not disagreeing with the statement HMRC issued alongside this consultation document when they say: “it is right and fair that everyone pays all the tax they owe, including on offshore income, gains and chargeable transfer.” I, like most people, strongly agree with this comment.
My concern, however, lies with the thought that, if the reasoning for this new time limit is to be accepted and it is due to offshore matters taking longer to gather, then surely the correct and more useful approach would be to address the processes used to gather this information?
This is somewhat amplified by HMRC’s rather contradictory claim within the consultation document that: “The UK has long been leading the way in tackling these issues in collaboration with other jurisdictions”.
Keeping in mind that these new assessment time limits will only apply to cases where non-deliberate errors may have arisen, then is it fair to shift this burden of uncertainty onto the taxpayer? There is nothing in HMRC’s consultation document about the time limit for a taxpayer to make a claim being extended in line with the new proposals, which seems unequal in terms of fairness.
Impact on taxpayers
I hope that HMRC will reconsider the detrimental impact that such uncertainty can bring to taxpayers’ lives. You only need to speak to the people that have recently discovered they are to unexpectedly receive a 2019 Loan charge in respect of income going back to 1999 to realise just what effect this can have on their mental health.
For that reason alone, I must hope that this isn’t the beginning of the end with regards to time limits for tax assessments.
As this is a consultation on the draft law, HMRC is open to comments. You can send your comments by email to [email protected] or post them below, and AccountingWEB will make a response on your behalf.
About Phil Manley
Phil Manley spent 14 years at HMRC as an inspector in large business before being a senior technical specialist in the counter avoidance team dealing with the APN regime.
After spending a couple of years in the Big Four he has, in partnership with ex-partners from other Big Four firms, established DSW Tax Resolution, to offer a leading tax investigations service.