HMRC uses information on Register of Overseas Entities to target tax compliance.

HMRC is sending letters to overseas entities (OEs) that have registered on the UK’s new Register of Overseas Entities (ROE) to ‘recommend’ that the OE, and any of its beneficial owners, should take the opportunity to bring their tax affairs up to date. It is empowered to use information from the Register to identify tax non-compliance as from 28 February.

The ROE, which was introduced last August under the Economic Crime (Transparency and Enforcement) Act 2022, is held by Companies House, and requires all Overseas Entities that own land or property in the UK to declare their registrable beneficial owners (BOs) or managing officers (MOs).

The registration requirement is limited to ‘Overseas Entities’, defined as legal entities governed by the law of a country or territory outside of the UK. ‘Legal entity’ is defined as a body corporate, partnership or other entity that is a legal person under the law by which it is governed.

The registration requirement applies if the Overseas Entity is – or is proposing to become – a registered proprietor of a ‘Qualifying Estate’ in the UK. A ‘Qualifying Estate’ is a freehold estate – or leasehold estate for a term of more than seven years – that was acquired on or after 1 January 1999 in England and Wales, on or after 8 December 2014 in Scotland and on or after 1 August 2022 in Northern Ireland.

Overseas Entities that currently own a Qualifying Estate in the UK were required to register with Companies House and disclose their BOs or MOs by 31 January 2023. Only 19,510 registered overseas entities – out of a total of 32,440 – had declared their beneficial owners before this deadline.

The HMRC letters warn that all information provided on the ROE will be available to HMRC to use to identify any tax non-compliance by:

  • The company
  • Interested legal entities and arrangements
  • Beneficial owners, including UK-resident settlors and beneficiaries of trusts.

HMRC suggests that any OEs and BOs concerned by their tax position should consider taking professional advice to review their arrangements and use the Worldwide Disclosure Facility (WDF) to make a disclosure. If they notify HMRC under the WDF, they will then have 90 days to:

  • Gather all information needed to complete a disclosure
  • Calculate any final liabilities to tax, duty, interest and penalties
  • Submit the disclosure using the unique disclosure reference number (DRN) provided at notification.

Under the WDF, HMRC will not generally start an investigation into OEs and BOs during the 90-day period and, if it accepts the disclosure, no further action will be taken and penalties will be avoided. If no disclosure is made and tax non-compliance is identified from the information on the ROE, HMRC will open an investigation and it will then be too late to make a voluntary disclosure.

OEs and BOs are required to fill out relevant forms to authorise an agent to deal with HMRC on their behalf in respect of either a disclosure or in respect of the Annual Tax on Enveloped Dwellings (ATED) and any related Capital Gains Tax (CGT) issues.

“As an authorised agent, Sovereign has been (and continues to be) working extremely hard to register clients on the ROE,” said Stuart Stobie, Managing Director of Sovereign Corporate & Trustee Services. “If any clients have any concerns about their UK tax compliance, our in-house tax counsel will be available to deal with enquiries or we can engage external tax advisers to review current structures.

“It is clear from these letters that HMRC intends to be pro-active in using the ROE information. You should also be aware that HMRC has extended the time limits for assessing Income Tax, CGT and Inheritance Tax where the loss of tax involves an offshore matter or transfer. It can also apply increased penalties for non-compliance involving offshore matters and transfers.”

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