We had some serious topics to discuss in our latest email; first the obligation to write to clients about their offshore interests, and HMRC’s action in this area. Secondly; the introduction of the corporate criminal offence of failure to prevent tax evasion, which could impact your firm and your clients. Finally, a new deadline for submitting revised R&D tax relief claims and disclosure of information about companies which use that scheme.
Below is just an extract from last week’s tax tips email. To receive the full email when it is published each Thursday, simply follow the link on the right (or below, if you’re reading this on a mobile device)
Offshore assets disclosure letters
In our newsletter on 13 July 2017 we reminded you about your obligation to write to selected clients about declaring their overseas interests. The deadline for sending this letter is 31 August 2017.
Many financial advisers and banks have found it difficult to identify exactly which individuals they should write to, so they have sent a standard letter to all clients. This means your clients may have received a missive (possibly by email) from another adviser which contains some vaguely threatening text, as specified by HMRC. Those clients may come to you feeling alarmed or indignant.
This is a good opportunity to explain that the trigger for these letters is the introduction of the common reporting standard (CRS). This is an international initiative for tax authorities in over 80 countries to automatically exchange financial information in a common form, in a bid to catch tax evaders. The UK is an early adopter of the CRS, and has required financial institutions to report specified information to HMRC by 31 May 2017. HMRC is now starting to exchange that relevant information internationally.
As a result of receiving international data HMRC has written to certain individual UK taxpayers, asking them to make a declaration of competence with regard to their overseas income. These letters do not suggest that the taxpayer has failed to declare his overseas interests, but that is how the individual may interpret it.
Where your client has received such a letter from HMRC, you need to consider whether using the worldwide disclosure facility (WDF) is appropriate.
Last week we contemplated the hazards of completing tax forms incorrectly or late. We had a cautionary tale of mistakes when submitting a VAT claims under the DIY builder scheme, and a report of faults in HMRC’s processing of 2014/15 share scheme returns. We also had a final warning of the deadline for submitting USAtax returns – this applies to more people than you may realise.
US tax returns The USA has a citizen based taxation system, rather than a residence based system, which most other countries in the world operate. This means that all citizens of USA must complete a USA tax return every year, even if they have never lived in the USA.
This obligation to file a USA tax return extends to non-USA citizens who are in possession of a valid “green card” which allows a person to work in the USA. The deadline for filing the 2014 tax returns for US-related individuals who live outside the US was 15 June 2015, although a four month extension could be requested on IRS form 4868.
That extension is due to run out on 15 October 2015, which is also the last day on which an electronically filed personal tax return will be accepted by the IRS. Taxreturns submitted later must be filed on paper. Even if there is no tax liability in the US, a late filing penalty of up to $10,000 can apply.
The USA tax return needs to report the individual’s worldwide income, not just income that arises within the USA. This requirement gives rise to a potential double tax charges on non-USA income and gains. However, due to the operation of double taxation agreements with USA, there may not be any further tax to pay for a UK resident, as tax rates in the UK are generally higher than in the USA.
Having said that anyone completing a USA tax return must consider categories of income and gains which are tax free in the UK, but which are wholly or partially taxable under US law, such as:
sale of the taxpayer’s own home;
premium bond or lottery prizes; and
interest & gains generated within an ISA or pension fund.
Our US-tax experts can help you understand the USA tax compliance requirements for individuals, companies and trusts. This is an
extract from our topical tax tips newsletter dated 1 October 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
The full newsletter contained links to related source material for this story and the
other two topical, timely and commercial tax tips. We’ve been publishing this newsletter weekly since 2007; it’s clearly written
and focused on precisely what accountants in general practice need to know about each week.