The Chartered Institute of Taxation (CIOT) has reported that HMRC have commenced their compliance response to the Pandora Papers (The Papers). The Papers was a large leaking of documents containing sensitive offshore financial investment data in 2021. HMRC are now following up with individual taxpayers who they believe have not disclosed all taxable income.
- The Papers referred to 11.9 million documents from 14 offshore financial service companies, that were leaked to the media by the International Consortium of Investigative Journalists.
- The documents uncovered the offshore and often secret investments of the powerful, rich and famous, including world leaders, politicians and celebrities.
- A 2020 report by the Organisation for Economic Co-operation and Development (OECD) estimated that in excess of $11.3 trillion dollars was held offshore and tax authorities around the world often struggle with identifying and taxing these holdings.
- HMRC have started to issue letters, from 5 June 2023, to those who they believe may have additional tax liabilities as a result of the leaked documents. It is anticipated that this first tranche of letters will be sent to hundreds of people and a dedicated team has been set up to handle related queries.
- Potential Penalties for undeclared income could be up to 200% due to the offshore nature of the income and those receiving the latter have 30 days to respond.
- If any person is found to have acted dishonestly or fraudulently, HMRC may prosecute and use of the Contractual Disclosure Facility is the best option. For all other non-deliberate non-compliance, the Worldwide Disclosure Facility can be used. Assistance from a tax dispute specialist is recommended.
Useful guides on this topic
Penalties: Offshore Income, CGT & IHT
What penalties apply for errors and failures relating to offshore Income and Capital Gains Tax (CGT)?
Contractual Disclosure Facility (CDF)
What is HMRC's Contractual Disclosure Facility (CDF)? How does it work? What must taxpayers do under the CDF?
Worldwide Disclosure Facility
HMRC's Worldwide Disclosure Facility (WDF) opened on 5 September 2016. It allows the disclosure of a UK tax liability relating wholly or partly to an offshore issue.