Offshore Investment Taxation: Addressing the Pain Points and Demands from HMRC

EDI X FSL

HMRC’s Offshore, Corporate and Wealthy unit has generated a total yield of £971m1 in revenue since 2018/19. That’s in addition to a yield of over £12bn2 in revenue from the Fraud Investigation Service.

The “No Safe Havens” strategy was renewed by HMRC in 2019 and includes penalties for errors in offshore data within tax returns. It is important to correctly identify whether an offshore fund is reporting or non-reporting as there are differences in the tax treatment application.

UK taxpayers investing in an offshore fund are required by law to report their tax obligation to HMRC. Accountants are obliged to verify that the client’s returns are accurate based on the information provided by the client and their financial institution.

The common pain points include:

  • Many organizations undergo long working hours to review each client’s multiple investment portfolios to understand the tax treatment.
  • Data is not always available from the client’s investment managers and could be incomplete or inaccurate.
  • If your client has several investment managers, the data provided could be inconsistent, in different formats or out of date.
  • It is common that Excess Reportable Income (ERI) is missed from financial institution tax reports or could be incorrect.
  • Incorrect identification of an offshore fund’s reporting status could result in a higher tax bill for clients, as well as a possible fine from HMRC.

The Offshore Reporting Funds (ORF) service can eliminate this process. It is a duplication of effort that firms could better spend adding value to the services offered to their clients.

The ORF service has no long-term contract commitment, a turnaround time as fast as 24 hours and data coverage that includes:

  • Excess Reportable Income (ERI)
  • Equalisation policies & rates (yearly/quarterly/daily)
  • Distributions (Dividend/Interest)
  • Reporting period
  • Fund distribution dates
  • Ongoing reporting fund status check
  • Currency conversions as per HMRC guidance
  • Transparent fund reports
  • Constant NAV fund identification

The Offshore Reporting Funds Service is in Partnership with Financial Software Limited (FSL). FSL’s dedicated Data Analysis team can support your data queries and give you confidence in your reporting of the tax treatment of offshore funds. Their qualified team has more than 20 years of experience in the finance industry. Its members hold degrees in International Finance and Certificates in Investment that provide a solid understanding of financial securities data.

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1 Figure from FSL Freedom of Information Request
2 Figure from FSL Freedom of Information Request