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Bernie Ecclestone’s lessons on tax for offshore traders


Former Formula One owner Bernie Ecclestone is in the sights of the Crown Prosecution Service this week as it confirmed that it was charging him with fraud by false misrepresentation. The charge relates to projected tax liabilities arising from more than £400m in offshore assets which were concealed from UK tax authorities.

The case is an important lesson for traders who may make use of offshore centres for trading and indeed to  bank profits. While offshore brokers can offer a combination of higher rates of leverage and tax free profits (at the price of less consumer protection or come back), tax authorities will still expect traders to report capital gains. The Ecclestone case illustrates that they now know a lot more than they used to.

The number of wealthy UK taxpayers admitting to unpaid tax on offshore assets has jumped 35% from 3,301 to 4,443 in the last year according to multinational law firm Pinsent Masons.

These figures represent the number of declarations made to the Worldwide Disclosure Facility, a system by which taxpayers owing tax to HMRC on offshore income can come forward and confess. This allows taxpayers to potentially receive reduced penalties and provided an accurate and complete disclosure is made, the risk of criminal prosecution is significantly reduced. HMRC reserve criminal investigations where they need to send a strong deterrent message or where the taxpayer’s conduct is such that only a criminal sanction is appropriate.

HMRC is receiving information on tax payers from abroad

Pinsent Masons says the increase in individuals admitting to unpaid tax on offshore assets is likely to be due to an HMRC campaign warning taxpayers that they have received information from tax authorities abroad. HMRC has sent out letters in the last 12 months asking taxpayers to sign a declaration asserting they do not owe any tax from offshore sources.

HMRC now receives information on taxpayers’ offshore assets from tax authorities abroad through the Common Reporting Standard. Information shared with HMRC includes taxpayers’ names, addresses and the amount received in offshore income. Over 100 countries and territories participate in the Common Reporting Standard, including historically popular tax havens such as Switzerland, Bermuda, the British Virgin Islands and the Cayman Islands.

Pinsent Masons says the letters will have prompted many taxpayers to confess that they owe additional tax – and that those who ignore the letters are inviting an investigation.

Sophie Warren, a tax investigations expert at Pinsent Masons says: “Hiding offshore income from the taxman gets harder each year. As more and more countries agree to share information about individuals, the chances of getting caught multiply. The Common Reporting Standard has changed the game regarding offshore income sources. Increasingly, HMRC already has all the information it needs to prosecute thousands of people. These warning letters are really about giving people a final chance to come clean and receive a reduced penalty.”

Unlike previous arrangements for admitting hidden offshore income, under the Worldwide Disclosure Facility there is no reduction in penalties or immunity from criminal prosecution. The maximum penalty for failing to disclose offshore income is 200% of tax owed. The Finance Act of 2016 also created the criminal offence of failing to declare offshore income, carrying a possible prison sentence of up to 12 months.

HMRC is looking for additional income sources

The increase in the number of disclosures has seen the amount of additional revenue from offshore income increase 28% from £44.5m to £56.9m in the last year. Pinsent Masons says HMRC is likely to devote more attention to the issue of hidden offshore income now that investigative staff reallocated to the furlough scheme have returned to their primary roles.

Warren adds: “HMRC will be looking for as many additional income sources as possible to mitigate the impact of the pandemic. Going after hidden offshore income is likely to be high on their target list. As with any instance of unpaid tax, it is always better to get on the front foot and come forward rather than wait for HMRC to come knocking.”


Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

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