Protective assessments for offshore tax liabilities

These will mostly affect taxpayers who have made a voluntary disclosure under the Worldwide Disclosure facility (WDF) but who have not yet settled with HMRC.

HMRC issue tax assessments on an annual basis, but this year is different due to the extended assessing time limits for the requirement to correct (RTC) which ends on 5 April 2021. This will result in the raising of more assessments this year. We expect that these assessments will relate to the tax years 2011/12 to 2013/14.

The requirement to correct (RTC) legislation took effect from 1 October 2018. We published news articles in April 2018 and September 2018 that explain more about it.

HMRC have provided us with the following statement and an example of the letter that is being sent to taxpayers:

HMRC are making assessments over the next few weeks in respect of offshore tax disclosed to them, following the introduction of the Requirement to Correct (RTC) legislation (Schedule 18 F(No2)A 2017). The RTC extended some assessing time limits, which run out on 5 April 2021. Where a settlement has not yet been agreed with HMRC, and it is necessary to assess the tax, a protective assessment will be made shortly. A taxpayer’s right to appeal, and ask for a postponement of tax, are just the same as usual.

The Worldwide Disclosure Facility is available for customers to make a voluntary disclosure to HMRC. Through this process HMRC is helping customers to bring their tax affairs up to date and, usually, cases are settled by way of a contract settlement. When customers choose to disclose this way, they can self-assess their penalty and the majority of disclosures made this way will not result in an in-depth enquiry.

However, there are some customers with historic tax liability disclosures with whom HMRC have not yet been able to conclude a contract settlement. HMRC is restricted by assessing time limits set out in legislation, and for some of those customers where tax may fall outside those limits, HMRC will need to protect the tax that would otherwise be lost. HMRC will do this by sending those customers tax assessments. This does not mean that HMRC cannot continue to engage with agents or customers to agree their tax position for those years. If that is your customer’s preference you should contact HMRC to arrange this.

If you represent one of those customers who has tax that will fall out of the assessing time limits on 6 April 2021, HMRC will raise an assessment based on the customer’s disclosure and will write to you to advise you of the tax liability that HMRC have calculated. If your customer does not agree with the assessment raised by HMRC it is important that you or they write to HMRC to appeal it.

The letter and attachments that HMRC will send out, sets out the years HMRC needs to protect, the tax that is due, how to make a payment and what customers should do if they disagree. Where there is an agent acting, HMRC will send a copy to them.

Letters will also need to be tailored to individual circumstances, particularly where there is an ongoing compliance check.

I have received a protective assessment from HMRC. What do I do?

If you have unpaid tax with HMRC, then you may need to pay penalties and interest as well as the tax. The protective assessment concerns the tax only. The penalties and interest are charged separately.

As the example letter explains, HMRC issue the protective assessments where they ‘have been unable to reach an agreement with you covering the total amount due’ (including penalties and interest), and that the assessment is for the tax which HMRC ‘thinks you owe’. You might agree with the amount of tax charged by the assessment, or you might not.

I have already agreed the amount of tax due to HMRC

If you have agreed and paid the tax already, but you are disputing the penalty position with HMRC, HMRC will still need to issue a protective assessment for the tax you have paid. For example, they may be charging you a penalty based on careless behaviour, whereas you may be arguing that you took reasonable care. In this event, you do not need to do anything in respect of the assessment.

If you have not yet paid the tax, then you need to pay the amount of the assessment. If you cannot afford to pay, see What if I cannot pay my tax bill?.

I have not yet agreed the amount of tax due to HMRC

If you do not agree the amount of the assessment, you should appeal it. Normally, the deadline to appeal an assessment is 30 days from the date of the assessment. But currently HMRC are allowing taxpayers an additional three months to appeal because of the coronavirus pandemic. It is important that you appeal within the deadline.

If you choose to appeal, you can ask HMRC to carry out a statutory review of the decision, or take the matter straight to the First-tier Tribunal. Asking HMRC to carry out a statutory review is free and it should take no more than 45 days for them to inform you of the outcome. If you do not agree with it, you can continue your appeal through the courts.

If you choose not to appeal, then you will need to pay the amount of the assessment. If you cannot afford to pay, see What if I cannot pay my tax bill?.

If you need help, please see our Getting Help page.