Policy paper

Tackling offshore tax non-compliance

Published 30 October 2024

It is right and fair that everyone pays the correct tax, wherever in the world they or their assets are based.

However, challenges to compliance remain, including on offshore tax. Offshore tax affairs are often complex, and errors can lead to taxpayers declaring less tax than they should. A minority also seek to reduce their tax bill deliberately by hiding their income and assets offshore. Responding to offshore non-compliance is made more challenging by the complexity of many offshore arrangements, and the difficulties in obtaining information held in other jurisdictions.

It is inherently difficult to accurately assess the amount of tax that is incorrectly paid in the UK on assets and income held in countries outside of the UK. On 24 October 2024, HMRC published experimental statistics which estimate that 4% of UK resident individuals covered by Automatic Exchange of Information (AEOI) and traced to an HMRC record under-declared tax on their foreign income in 2018 to 2019. In absolute terms this represents around £0.3 billion. These statistics have been published to involve users and stakeholders in assessing their suitability and quality. This estimate is a subset of the Self-Assessment and hidden economy tax gaps already included in the published tax gap estimates, and represents a partial estimate of overall foreign income non-compliance. It excludes any non-compliance relating to companies with any form of foreign income; and individuals, foreign income or jurisdictions not covered in the AEOI data. As the experimental statistics indicate, there is more to be done to ensure the right tax is being paid on income covered by AEOI.

This document explains what will be done to increase compliance in respect of both income covered by AEOI and other non-compliance, such as that relating to non-financial assets like crypto-assets and the use of complex offshore structures to hide assets and income.

HMRC is determined to address offshore tax non-compliance, as part of the government’s efforts to close the tax gap. The UK plays an important role in international cooperation on tax transparency and has delivered domestic initiatives to ensure that we have the right data for compliance activity. Drawing on these data sources, HMRC’s strategy to address offshore non-compliance focuses on helping taxpayers get their tax right, assisting compliance and preventing mistakes, taking robust action to address any non-compliance, and undertaking global enforcement activity.

The government will take further steps to close the offshore tax gap by increasing the amount of offshore data available to HMRC, ensuring that tax is paid on AEOI income, and providing additional resources announced at Autumn Budget 2024 to allow HMRC to tackle more complex offshore cases.

1. Delivering tax transparency through international cooperation and domestic initiatives

Having the right data is key to effective compliance activity. International cooperation has led to a step change in tax transparency, which involves the exchange of information between countries to ensure that tax authorities have access to the data needed to combat tax evasion and avoidance effectively.

The Organisation for Economic Co-operation and Development’s (OECD) landmark agreement, the Common Reporting Standard (CRS), was a significant step forward on global tax transparency, piercing through financial secrecy, and delivering visibility globally of the offshore financial accounts of taxpayers. HMRC currently receives information on around 9 million accounts from over 100 jurisdictions, helping to secure yield of more than £820 million from compliance activity. This figure does not include additional yield raised through disclosures made due to the deterrent effect of the CRS being in place.

To take action on the compliance challenges posed by changes in technology and the economy, the UK is leading work in the OECD and with international partners to develop and implement further AEOI agreements:

• the Reporting Rules for Digital Platforms, which came into force from 1 January 2024, require digital platform operators to report information on people selling goods and services via their platform to tax authorities and sellers. These rules will help taxpayers operating on digital platforms to get their tax right, and help tax authorities to identify and tackle non-compliance by providing a rich new source of data

• the Crypto-Asset Reporting Framework (CARF), which the UK has committed to implementing for the collection of information from 2026 and its exchange from 2027. This will allow the automatic exchange of information on ownership of, and transactions in, crypto-assets, which are not covered by the CRS. This is to ensure that recent gains in global tax transparency will not be gradually eroded by the emergence of new financial technologies

Accurate and complete identification of beneficial ownership information, i.e., who ultimately owns or controls a company or legal entity, is crucial for HMRC to ensure that tax is paid correctly. The UK has established a publicly available register of beneficial ownership for UK-registered companies (the People with Significant Control Register). Recent reforms have also strengthened Companies House, giving the Registrar new powers to check and challenge information, and requiring identity verification for people who are setting up, running, owning or controlling UK companies. In August 2022, the Register of Overseas Entities was introduced, giving HMRC access to beneficial ownership information on those using complex offshore structures to own and benefit from UK property.

2. HMRC’s approach to the challenge of offshore tax non-compliance

Drawing on these domestic and international data sources, HMRC’s strategy to ensure offshore tax compliance is focused on helping taxpayers get their tax right first time, taking robust action to tackle compliance risks, and working with international partners on enforcement.

2.1 Assisting compliance and preventing mistakes

HMRC takes a data-led approach to educate, remind or prompt taxpayers to review their tax affairs. HMRC has also taken steps to redesign systems and processes to prevent mistakes before they happen, for example drawing on data from international exchanges to design intelligent ‘nudges’ in customers’ Self-Assessment tax returns to ensure they declare foreign income correctly. HMRC also uses data to prompt relevant customers to review their tax affairs and correct any undeclared offshore tax liabilities, for example, through the Worldwide Disclosure Facility (WDF). Since the WDF opened, HMRC has received more than 41,000 disclosures through this channel, with more than £430 million underpaid tax being collected.

2.2 Responding appropriately to offshore tax non-compliance

HMRC also takes a data-led approach to compliance, assessing data and comparing that with existing taxpayer records to identify the most significant risks and determine the appropriate response. This pool of data, including AEOI data and intelligence, is used by HMRC to focus their efforts on challenging individuals and companies that are at a higher risk of carrying out serious offshore non-compliance and to take appropriate action, for example those deliberately moving proceeds of crime offshore or individuals deliberately creating complex offshore corporate structures to evade paying tax. Steps have been taken to improve HMRC’s compliance powers, including a 12-year time limit for assessing offshore tax, and strengthening offshore penalties and information powers.

2.3 Undertaking global enforcement activity

HMRC uses insights from data to shape and inform our compliance activity – for example, supporting existing enquiries and providing evidence of potential non-compliance on which new enquiries may be opened. This ensures that we are targeting the most appropriate sectors or individuals who pose a higher risk of carrying out serious offshore non-compliance. HMRC also works with national and international partners to share intelligence and collaborate on enforcement, e.g. through the Joint Chiefs of Global Tax Enforcement (J5) group with the US, Canada, Australia and the Netherlands, which led to significant criminal investigations related to a Puerto Rico-based bank in 2022.

3. Going further to address the remaining challenges on offshore tax non-compliance

Despite significant progress made in promoting global tax transparency and tackling offshore non-compliance, challenges remain. The complexity of structures used by wealthy individuals makes compliance work challenging, involving different tax risks and connected entities, located in different jurisdictions. There is also evidence that the CRS has led to an increase in individuals concealing their wealth through the use of non-financial assets.

This government is committed to going further to close the offshore tax gap. At Autumn Budget 2024 the government announced significant additional resources, including the scaling up of compliance activity to tackle serious offshore noncompliance including fraud by wealthy customers, corporates they control and other connected entities. As a result of this investment, HMRC will deliver a more coordinated and targeted approach to those who deliberately seek to evade paying tax due in the UK, increasing HMRC’s capacity and capability to tackle the most challenging examples of serious non-compliance. This will enable HMRC to:

• disrupt offshore intermediaries: the role of intermediaries such as agents and accountants are critical in the implementation of complicated offshore structures. To disrupt these intermediaries and other enablers involved in the creation of such structures, HMRC will bring together expertise to target and disrupt the mechanisms they use to facilitate offshore tax non-compliance
• target corporates and trusts that facilitate evasion and avoidance: HMRC will tackle the artificial suppression of UK tax liabilities using offshore legal structures. Using data from the Registration of Overseas Entities, which requires the disclosure of information on beneficial owners of UK property and interested trusts, HMRC will identify and target individuals and companies who avoid or evade tax due
• improve our intelligence, data and analytical capabilities: using resources announced at Autumn Budget 2024, HMRC will invest in advanced analytical capability to exploit new sources of information to improve the identification of areas of non-compliance we currently struggle to reach. We will detect patterns of tax evasion and improve identification of tax ‘ghosts’ – individuals or entities who are not registered with HMRC and therefore do not file tax returns or report any income. HMRC are also seeking to make it easy for non-compliant taxpayers to correct their affairs, including by investing in improvements to the WDF to provide a simple route to disclose additional income and tax liability, correct them, and then make payment in one interaction

This government has taken action to strengthen domestic rules to support offshore compliance and simplify the tax system. At Autumn Budget 2024, the government announced a suite of changes to increase our access to, and improve our use of, transparency data. This includes:

• extending CARF reporting to UK crypto-asset users, in order to make it easier for HMRC to systematically collect this information
• making changes to the penalty regime for failure to report CRS data, to ensure reporting institutions are meeting their obligations
• publishing a consultation on ways to help tackle problems arising from the mismatch of overseas interest data provided on a calendar year rather than UK tax year basis. The consultation seeks to make it easier for taxpayers to declare the correct tax, and for HMRC to help them, and detect non-compliance

In addition to taking domestic action, the UK will continue to work with international partners to further extend the global transparency system and address remaining gaps, such as non-financial assets. The G20 has mandated the OECD to explore new initiatives to increase transparency on real estate holdings and transactions, and to improve access to beneficial ownership information across jurisdictions. Efforts to increase transparency relating to real estate aim to uncover hidden assets and ensure that property owners are paying their fair share of taxes. Beneficial ownership information helps to identify those who truly control assets and income streams, which will help prevent the misuse of complex corporate structures to evade taxes. The UK is a strong supporter of this work, which complements domestic reforms on beneficial ownership transparency.