Advice please regarding penalties for failure to disclose income

jem16

gterr wrote: »

Thanks. No, I don't want the hassle. But cost is an issue now, and also time, since HMRC are going to request income info from stepfather in order to deal with any bereavement benefit recoding. It's important to give HMRC the info before they discover it themselves by asking, in order to have a lower penalty. (That's my understanding, anyway.)

A tax accountant that specialises in tax treaties with different countries may well be worth the expense if you don't know what you are doing.

I'm sure it's worth asking the question before diving in.

gterr

jem16 wrote: »

A tax accountant that specialises in tax treaties with different countries may well be worth the expense if you don't know what you are doing.

I'm sure it's worth asking the question before diving in.

Yes, good point.

Perhaps the way to go is to write to HMRC to disclose the income, and say there MAY be a tax liability, and there MAY be tax owed, and we are looking into it? That would cover us without admitting tax liability. Would you agree?

jem16

gterr wrote: »

Yes, good point.

Perhaps the way to go is to write to HMRC to disclose the income, and say there MAY be a tax liability, and there MAY be tax owed, and we are looking into it? That would cover us without admitting tax liability. Would you agree?

I would tend to find out first. I don't think a few days/weeks will make any great difference.

Savvy_Sue

gterr wrote: »

I should perhaps have pointed out that we are in Scotland.

<snip>

The solicitor seems completely clear that the joint account money does not automatically pass to my stepfather. Are you sure he's wrong?

Ah, yes, always worth saying you're in Scotland!!!

zzzLazyDaisy wrote: »

The other option (depending on who the other beneficiaries are, and whether they agree) is for the beneficiaries to agree to a variation of the will. In effect this changes the will to whatever the beneficiaries feel is just and equitable, so it would be possible for your stepfather to inherit a larger share of the money. But all beneficiaries must agree to this.

It may be different in Scotland, but down here it's all affected beneficiaries: in other words, if you wanted to allow your stepfather to inherit more by reducing your 'share', and your brother didn't, that would be OK. However, I have no idea if the same holds true in Scotland.

I know the Which Guide to Wills and Trusts was very useful to us, but can't remember how much attention it gave to the situation in Scotland. Is there an idiot's guide to these things in Scotland? I'd head to your local library and find out ... but make sure you have a current edition, not an out of date one.

BTW, I don't think I understood a lot of what Cook County said either, but that's an indication to me that it would be worth following jem16's advice and getting a tax accountant who knows about tax treaties with other countries. It may take a few phone calls, but should give confidence that all the questions which need to be asked have been asked.

Cook_County

gterr wrote: »

Stepfather is German by birth but is domiciled in Scotland. He has been resident in the UK since 1984. I think there may be about £3500 tax due, plus whatever penalty is added. I'm afraid I don't understand any of the rest of your post.

Simply being resident in Scotland since 1984 does not make one domiciled in Scotland. Indeed it is unlikely that he is domiciled in Scotland, but this does not seem material to this question.

You simply have not said what kind of pension this is and therefore no-one (you included) can tell whether the UK or Germany have primary taxing rights under the tax treaty between the two countries.

You have also not said if any German tax has been withheld.

gterr

Cook_County wrote: »

Simply being resident in Scotland since 1984 does not make one domiciled in Scotland. Indeed it is unlikely that he is domiciled in Scotland, but this does not seem material to this question.

You simply have not said what kind of pension this is and therefore no-one (you included) can tell whether the UK or Germany have primary taxing rights under the tax treaty between the two countries.

You have also not said if any German tax has been withheld.

Sorry, yes: I am being sloppy with my wording regarding 'resident' and 'domiciled', but as you say, probably not relevant to this, and solicitor is dealing with the Will provisions so I'm happy to trust him.

I have not answered the other questions because I don't know. The first I learned of this was a couple of days ago when I saw a bank statement. I have now seen one set of payment advice slips for the latest monthly payments into the bank. Luckily, stepfather keeps all paperwork, so I will be able to see the pension statements themselves in due course (though these will be in German). As James said, these statements should at least indicate if any tax has been paid at source.

Since my last post I have determined that Germany and UK have a double-tax treaty (or whatever the term is) with the default position that pensions from Germany should be taxed in UK except for some specified exceptions. But since this treaty was only drawn up two years ago, a different position may apply to the earlier years.

So, with regard to HMRC, at the very least there has been a failure to notify income from these pensions. And there is probably a tax liability. I will be able to calculate this liability exactly for the last couple of years at least (depending on how many years of paperwork stepfather has kept), but the earlier years will be harder. I have revised my preliminary estimate of tax owed, and the figure is now in the region of £2000.

In view of my stepfather's distress I want to resolve this quickly, and for that reason I would rather not involve another layer of tax specialists etc.. I wonder if HMRC would accept my best estimate of tax owed. Frankly, for everyone's sake I would rather offer them, say £2500 to have it all squared up, than have the issue drag on for months and perhaps pay a lower sum. Would HMRC go for this, do you think?

Many thanks, as always, for all the helpful comments.
I always learn a lot here!

zzzLazyDaisy

Hi, I am not convinced that you need to calculate the tax owed. What you need to do is to notify HMRC about the situation and provide them with all the details and they will tell you what is owed. As your sf has kept the paperwork, you will probably have year end statements for each of the years in question (something equivalent to P60). This should be sufficient to enable HMRC to work out the tax - they will also check the tax situation between Germany and UK. I suggest that you take the year end statements and any other relevant paperwork to your local tax enquiry office, and seek their advice. It is obviously a genuine oversight and I am sure you will find them helpful in the circumstances.

gterr

zzzLazyDaisy wrote: »

Hi, I am not convinced that you need to calculate the tax owed. What you need to do is to notify HMRC about the situation and provide them with all the details and they will tell you what is owed. As your sf has kept the paperwork, you will probably have year end statements for each of the years in question (something equivalent to P60). This should be sufficient to enable HMRC to work out the tax - they will also check the tax situation between Germany and UK. I suggest that you take the year end statements and any other relevant paperwork to your local tax enquiry office, and seek their advice. It is obviously a genuine oversight and I am sure you will find them helpful in the circumstances.

Many thanks. Good plan!

jimmo

As you have said that the occupational pension started 5 years ago that is a good starting point.

The normal time limit for assessment is 4 years from the end of the year of assessment but HMRC can go back up to 6 years for “carelessness”.

http://www.hmrc.gov.uk/manuals/chmanual/CH56100.htm


At this stage we are only looking into whether offences have been committed. They have and, sadly for your stepfather, ignorance of the law is no excuse.

However, certainly in my days at HMRC, it was incumbent on the Enquiry Officer to establish culpability before invoking any form of extended time limit. That was preferably done by interview but can be done by correspondence.

Therefore it is relatively easy for HMRC to seek to recover the tax unpaid for 2009/10 onwards. To seek any unpaid tax for earlier years is slightly more problematical but, as long as the Enquiry Officer follows correct procedures it can be done.

This, I suppose is where human nature comes into it. In my day my initial approach to this sort of Enquiry would be to recover the tax for in date years only but, that was my decision and, as long as the enquiry progressed satisfactorily I would stand by that.

No promises here, just a personal viewpoint, but I think that you or your stepfather would have to really irritate the Enquiry Officer before he/she reopened Extended Time Limit years.

Whether German tax has been suffered is a question of fact. If it has then either your stepfather can recover the German Tax or he can claim relief against his UK liability. Whilst the principles may be complicated the ultimate solution will just be sums. I would urge you not to delay contacting HMRC on this point alone. Much better to explain it as an unresolved problem and what you are doing to resolve it.

Turning now to penalties this is where mitigation comes in and I would suggest that neither being German nor being unable to understand written English is really convincing. After all, if he was living in his native Germany would he really expect to have a German source of income subject to German tax and a UK source of income not subject to German Tax?

Simply being aged seems to me to be a much more powerful argument.

Finally the difference between a prompted disclosure and an unprompted disclosure could be quite important. Its not exactly clear to me exactly where you stand but if your stepfather has received an enquiry form from HMRC about the potential increase to his State Pension anything you tell them now will be prompted. If the Pensions Service has advised him to expect HMRC to get in touch you could still get away with an unprompted disclosure but time is probably rapidly running out.

jamesd

To reduce doubt: where what jimmo has written conflicts in any way with what I've written here, go with what jimmo wrote: jimmo has done the job, I haven't come anywhere close to that.