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Resolving Offshore Tax Dispute for UK Resident - a Case Study

Resolving Offshore Tax Dispute for UK Resident – a Case Study

Client Background

Our client, a UK resident working overseas during the week, sought our assistance when he received correspondence from his offshore bank. He needed support resolving a potential offshore tax dispute. The bank informed him about their obligation to share his account details with HM Revenue & Customs (HMRC) under the Common Reporting Standard. The client, realising that he had not disclosed the offshore account to HMRC, was concerned about potential investigations for tax fraud.

The issue for the client

The primary issue was the urgent need to disclose the offshore account to HMRC before the bank shared information that could trigger a tax fraud investigation—a criminal offence. Over the years, the client had accumulated over £700k in contracting income in the offshore account. In the initial year, none of this income was declared to HMRC. From the second year onward, only half of the income was transferred to a UK bank, with disclosure made only for that portion.

Resolution approach

To address the issue, we took decisive action on behalf of our client by applying to HMRC for the Contractual Disclosure Facility. This facility allows individuals to voluntarily disclose additional tax liabilities on a civil basis, mitigating the risk of criminal proceedings.

The outcome of the process

Through a thorough analysis of the client’s situation, we strategically approached the disclosure process. Despite the seriousness of failing to disclose income in the first year, we successfully argued that there were valid reasons for the client’s behaviour. In the initial year, the taxpayer was in a new country, guided by third parties such as agency representatives and the offshore bank, and he followed their advice.

By distinguishing the taxpayer’s behaviour in the first year from subsequent years, we were able to demonstrate a case of carelessness rather than intentional tax evasion. This argument proved pivotal in saving the client a total of £170k in tax, interest, and penalties. Additionally, HMRC was deemed out of time to assess, further safeguarding the client from potential financial ramifications.

Conclusion

This case exemplifies the importance of proactive tax planning and voluntary disclosure in navigating a complex offshore tax dispute and financial situations. By leveraging the Contractual Disclosure Facility and presenting a compelling case for carelessness in the initial year, we successfully helped our client avoid criminal charges and significantly reduced the financial burden associated with backdated tax liabilities. This outcome underscores the value of strategic and informed decision-making when dealing with international tax matters. Get in touch to find out more about our services.

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