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In the , HMRC estimates that about 4% of UK resident individuals covered by Automatic Exchange of Information (AEOI) had failed to accurately report their foreign income in the 2018/19 tax year. A further 700,000 individuals identified under the AEOI could not be traced to an HMRC record indicating that a significant number of individuals were not even registered for self-assessment in the UK.

HMRC estimates that non-compliance relating to these individuals cost the UK exchequer £400m in the 2018/19 tax year, but HMRC only recovered £100m of that amount. Despite HMRC's diligent efforts in collecting data on individuals with foreign income, it appears that the use of this data has only recovered 25% of the amount identified by HMRC to have been at risk. 

Whilst AEOI was widely considered to be a key part of HMRC’s arsenal for tackling the tax gap, it served to address only 1.3% of the net self-assessment tax gap, which was estimated to be £7.7bn in 2018-19.

HMRC has the authority to collect unpaid tax relating to offshore matters for up to 12 years, irrespective of the reason for the non-compliance, whereas onshore matters are limited to four years without careless or deliberate behaviour being in point. This extensive retrospective period enables HMRC to gather information and act on historical discrepancies, but it creates a long period of uncertainty for individual taxpayers. However, given the limited yield realised, it raises the question is a 12-year period truly warranted, especially when 99% of instances of undisclosed foreign income involve tax risk of less than £10,000 (as per the latest data).

HMRC’s power to extend the tax assessment clock for offshore matters imposes a significant administrative burden, not only on the taxpayers but also on HMRC itself. The uncertainty for taxpayers, alongside the administration required to uncover minor discrepancies, seems like a considerable effort for limited return.

While HMRC’s powers are undeniably vast, their effectiveness in recovering significant overdue taxes appears less impressive. Perhaps it is time to reconsider the approach. Is delving back 12 years for amounts often less than £10,000 truly necessary, or is it simply compounding administrative challenges for all parties involved?