Recently published proposals reveal that IT contractors and other contractors who have offshore companies will have to inform HMRC about their arrangements and also give a list of their clients who are using this offshore structure.
In case the contractor does not notify HMRC about the arrangements, the responsibility of doing so will be passed on to the clients. HMRC officials have acknowledged that in many instances, contractors use offshore arrangements legitimately.
When the client using the offshore scheme informs HMRC, they will be provided with a unique reference number. This number can be used at a later stage by the taxman to identify the offshore scheme. HMRC has also made it mandatory for offshore scheme users to fill in the reference number when submitting their tax assessment.
The HMRC consultation warns that IT contractors, their clients and other users of offshore arrangements will attract civil sanctions if they do not comply with the requirements. The penalty can go up to 10 per cent of the total assets in the offshore scheme.
This new move by the taxman shows that the Government is taking a tough stance to tackle tax evasion. Already, several other measures have been proposed as part of the 2016 Autumn Statement to reduce tax avoidance, such as criminalising tax evasion and penalising those who assist contractors and their clients to evade taxes.
The Requirement to Notify consultation is open for responses until 27th February 2017. Affected and interested parties can respond along with their suggestions as to which tax evasion areas HMRC should focus on. HMRC believes that this requirement will improve the department’s ability to assess risk and target those few contractors who misuse tax evasion methods to gain advantage over legitimate businesses and contractors.