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31 July 2023

HMRC Pandora Papers: What to do if you have Undeclared Offshore Income or Gains

The recently published Pandora Papers put offshore tax in the headlines once again. If you have undeclared offshore income or gains, it is important to act now.

HMRC Pandora Papers What to do if you have Undeclared Offshore Income Gains

The Pandora Papers are thought to contain the names of over 750,000 companies and individuals across some 200 countries and territories. They reveal the offshore financial activities of politicians, celebrities, and other high-net-worth individuals and companies. This information was released by the International Consortium of Investigative Journalists between October 2021 and May 2022. It came in the wake of a massive leak of almost 12 million documents from 14 different offshore service providers.

The Pandora Papers and Offshore Tax

The Pandora Papers highlight how individuals and companies can use offshore accounts and investments to avoid paying tax. Offshore tax evasion is a serious crime that can result in severe penalties and legal consequences. As a direct result of the Pandora Papers, HM Revenue and Customs (HMRC) are currently identifying individuals who may have undeclared offshore income gains.

Should you be worried if you have undeclared offshore income gains?

If you have income or gains from offshore accounts or investments that you have not reported to HMRC, this is undeclared offshore income or gains. Examples include income from rental properties, interest on savings accounts, and gains from the sale of assets such as stocks or property.

Following publication of the Pandora Papers, HMRC established a dedicated team to uncover hidden assets and identify owners. HMRC are writing to around 600 individuals who they believe have undeclared offshore income or gains. The letter asks recipients to review their declaration of offshore income or gains. If there is an under-declaration, the penalty can be up to 200% of the tax due. There is a 30-day response window and HMRC suggest seeking professional advice.

What to do if you receive a letter from HMRC regarding offshore income gains

If you receive a letter from HMRC regarding your offshore tax affairs, it is important to act promptly. Here is a step-by-step guide on what to do:

  • Read the letter carefully: Make sure you understand what HMRC is requesting.
  • Gather all relevant information: Collect all the necessary information and documents related to your offshore tax affairs. This may include bank statements, investment records, and tax returns.
  • Seek professional advice: Consider seeking professional advice. FPM’s reputable tax experts have knowledge-driven expertise in dealing with offshore tax matters.
  • Respond to the letter: Respond to the letter within the specified time frame and provide HMRC with all the requested information and documents.
  • Cooperate with HMRC: Cooperate fully with HMRC and provide any additional information or documents they may request.
  • Consider making a voluntary disclosure: If you have undeclared offshore income or gains, consider making a disclosure to HMRC to avoid more severe penalties.

What to do if you have Undeclared Offshore Income Gains?

If you have undeclared offshore income gains, it is particularly important to respond to HMRC in the correct way. There are two possible ways to deal with tax under declarations for offshore matters:

  • A Contractual Disclosure Facility (CDF) under Code of Practice 9 (COP9);
  • A disclosure under the Worldwide Disclosure Facility (WDF).

The COP9 procedure enables HMRC to recoup tax, interest and penalties over a backdated period of 20 years. Where deliberate behaviour or fraud is suspected, the CDF allows you to admit to fraudulent conduct in return for confirmation from HMRC that, provided a full disclosure is being made, you will not face a criminal investigation. It cannot be overstressed how important it is to weigh up your options properly if this applies to you.

Alternatively, if your behaviour was “careless” rather than deliberate or fraudulent, the WDF can be used. In this regime you don’t have to admit to fraudulent behaviour but you must comply with the relevant requirements.

What happens if you don’t respond to the HMRC letter?

If you receive a letter from HMRC and fail to respond you leave yourself open to the full rigours of HMRC’s “failure to correct” penalty regime for offshore tax issues. The consequences of doing nothing are that you could face prosecution or criminal proceedings if HMRC can prove your behaviour was dishonest or fraudulent.

Penalties for Undeclared Offshore Income Gains

If you do not make a disclosure and HMRC discovers that you have undeclared offshore income gains, the consequences can be very serious. Significant penalties, interest, and even criminal charges can ensue. As mentioned, the penalties can be as high as 200% of the tax owed.

We Can Help

The release of the Pandora Papers caught the attention of worldwide tax authorities and is a factor in HMRC’s current crackdown on offshore tax evasion. Advanced technology and data analytics are being used to identify individuals and companies who may be evading tax. Making a disclosure is a complicated process and the penalties for offshore tax evasion can be severe so it is advisable to seek professional advice if you have any undeclared offshore income gains.

If you need assistance or advice, FPM’s award-winning Tax Team can help you make any necessary disclosures and ensure that you engage with HMRC in the appropriate way to mitigate any potentially damaging financial fallout.  For more information, contact us today.

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Contact Seamus

Seamus McElvanna / Senior Tax Manager

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