UK residents named in the leaked Pandora Papers are being given the chance to come clean over their offshore tax affairs. But they must act fast because they only have a “narrow window” to put things right.

HMRC is sending ‘nudge’ letters to UK residents named in the files of 14 offshore financial service providers. These providers specialise in companies, trusts and foundations in low, or no tax, jurisdictions.

Report overseas income or gains

The letters, which started going out this month, warn recipients to report all their overseas income or gains they owe UK tax on, or face penalties of up to 200% of any tax due or prosecution. The recipients have 30 days from the date of their letter to correct their tax affairs.

Kirsty Telford, Deputy Director for Offshore at HMRC’s Risk and Intelligence Service, said: “Tax evasion is increasingly global – but, unfortunately for tax criminals, so is HMRC’s reach, accessing data and intelligence through international collaboration.

“Our message to users of these financial services is think hard and take this opportunity to be honest and pay the tax you owe, because the reputational and financial damage if you don’t can be significant and long-lasting. We are giving people a narrow window of time to do the right thing and correct their tax records, before we take action.”

What are the Pandora Papers?

During 2021 and 2022, the International Consortium of Investigative Journalists (ICIJ) published 11.9 million records from 14 offshore service providers.

This release of leaked financial documents – dubbed the ‘Pandora Papers’ – is bigger than the 2016 release of the ‘Panama Papers’.

What should people who receive a ‘nudge’ letter do?

UK residents named in the Pandora Papers who receive one of the ‘nudge’ letters can make disclosures using the Contractual Disclosure Facility (CDF) or the Worldwide Disclosure Facility (WDF).

It’s important to use the correct method of disclosure. If you’re unclear about which service to use, you should get professional tax advice.

The Contractual Disclosure Facility

The Contractual Disclosure Facility is the opportunity for a taxpayer to tell HMRC about any tax fraud they’ve been involved in.

They can only use the CDF to admit to tax fraud. They mustn’t use the facility to tell HMRC about errors, mistakes or avoidance schemes that aren’t related to fraud.

The CDF covers the broad range of taxes, duties and payments administered by HMRC.

The Worldwide Disclosure Facility

The Worldwide Disclosure Facility is for anyone who wants to disclose a UK tax liability that relates wholly or partly to an offshore issue.

The WDF doesn’t provide any protection from prosecution, and so where there is deliberate and/or fraudulent conduct such as evasion, the CDF is the more appropriate facility.

Our advice on managing offshore tax

The reality of today’s world – and the level of information sharing now in place between jurisdictions – is that HMRC will become aware of any assets or funds a taxpayer holds offshore. So, it’s only a matter of time before the question is asked: do you have any income or capital gains to disclose?

The Worldwide Disclosure Facility allows taxpayers to “come clean” to HMRC and move on with their lives without the fear of reprisals.

However, penalties in the offshore arena can be as high as 200% of the tax due, plus interest. So, not disclosing income or gains from offshore territories can be an expensive mistake.

It’s therefore best to make sure your tax affairs are structured correctly from the start.

Offshore tax advice

Our team of specialist tax advisers can help you with a range of offshore tax matters, including disclosures.

Call Churchill Taxation today on 07813 434195 or email: stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation