To those of us who spend our working hours musing on tax problems, not thinking about the tax implications of where we choose to live, what we invest in and how we do business can seem, well, pretty strange. However, for most (normal) people, tax, and tax compliance in particular, are not top of their list of concerns.
Take becoming tax resident in the UK. It’s not at all unusual for regular visitors to the UK not to think about whether the number of days that they are spending in the UK gives them any exposure to UK taxes. Whereas for tax advisers, spending time in excess of occasional visits in any country sets alarm bells ringing loudly. But should we be so surprised that, for our lay clients, it does not?
Developments in UK tax legislation mean that it’s more important than ever to ensure that our clients learn to recognise when they have reporting obligations to HMRC. The Finance Act 2016 introduced three new offences of strict liability (section 106B-D Taxes Management Act 1970), applicable to tax years commencing 6 April 2017 but, for technical reasons, their coming into effect is staggered:
Enabling legislation has recently confirmed that no offence will be committed if the total of the under-declared or under-reported tax in relation to offshore income, assets or activities does not exceed £25,000. However, where more than that amount of tax is at stake, the liability is strict, meaning that there is no need to have any dishonest intent in order to be guilty of the offence. An innocent mistake or ignorance of UK tax law will not provide any defence but if the taxpayer can demonstrate that he took reasonable care over his return or had a reasonable excuse for failing to comply, no offence will have been committed. However, if an offence is committed, an unlimited fine, a prison sentence of up to six months, or both, is possible.
It’s not hard to see how recently arrived UK resident non-doms who have foreign income and gains, but do not realise that they are obliged to claim the remittance basis of taxation in order to avoid being taxed on an arising basis on non-UK income and gains, could easily get burnt by these new rules. These clients in particular need to be made aware of their UK tax compliance obligations. We shouldn’t assume that they know.