The Government and HMRC are getting tougher in their approach to tackling those who do not declare the correct amounts of tax due on their offshore income and gains. Where previously non-compliant taxpayers were able to avail themselves of HMRC’s past favourable disclosure facilities, there is now a statutory obligation for taxpayers to correct any issues with their UK tax position in relation to offshore tax non-compliance which existed as at 5th April 2017.
What is changing?
If an error is not corrected by 30th September 2018, the Failure to Correct (FTC) regime will commence, with punitive penalties, including:
- a tax geared penalty of between 100% and 200% of the tax not corrected
- a potential asset-based penalty of up to 10% of the value of the relevant asset where the tax at stake is over £25,000 in any tax year
- potential ‘naming and shaming’ where over £25,000 of tax per investigation is involved
- a potential additional penalty of 50% of the amount of the standard penalty, if HMRC could show that assets or funds had been moved in an attempt to avoid the any requirement to correct.
No penalty will be chargeable where the taxpayer has a reasonable excuse for failing to correct the position. A ‘health check’ of a taxpayer’s position during the RTC period is likely to provide a strong defence.
The message from HMRC to those with unreported offshore income and gains is clear-come to us before we come to you.
Included in the Finance Act (No.2) 2017 and known as Requirement to Correct (RTC). The RTC applies to any person, i.e. individuals, partnerships, trustees or non-resident landlord companies, with a potential undeclared UK income tax, capital gains tax and / or inheritance tax liability.
Action to be taken now
All taxpayers who have or who had any offshore financial connections (including those who consider themselves to be non-UK domiciled and / or non-UK resident) should review their UK tax affairs to ensure that all tax returns are correct. Additionally, taxpayers should ensure they have submitted tax returns for all years for which they owed tax on income or gains.
This includes checking implementation of planning and technical opinions (e.g. that someone’s belief that they are non-UK domiciled is correct) and whether advice taken in the past was refreshed when the law or circumstances changed. Offshore structures, anti-avoidance legislation and remittances should also be reviewed.
How to correct a person’s tax affairs?
Those who identify errors or failures to submit / notify in the past must rectify the situation before 30th September 2018.
The main route to let HMRC know about previously undeclared income or assets is the Worldwide Disclosure Facility through the Digital Disclosure Service. This is the final opportunity to make a disclosure before potentially draconian penalties are levied.
Common Reporting Standard
HMRC is beginning to receive an unprecedented amount of information about foreign income and assets under the Common Reporting Standard (CRS) exchange of information.
By September 2018, more than 100 jurisdictions will be exchanging data with the UK under the CRS. The CRS data will provide HMRC with information on UK taxpayers’ bank accounts, investments and trusts held around the world. HMRC will use this information to open tax enquiries, issue tougher penalties, and take forward criminal prosecutions against those who avoid paying the tax they owe.
RTC is the last opportunity to correct matters before HMRC receives the CRS data and the new penalties apply.