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Deadline fast approaching for those with undeclared offshore tax liabilities

Article posted: 30th August 2018

The second Finance Bill in 2017 introduced a ‘Requirement to Correct’ (RTC) for taxpayers with undeclared UK income tax, capital gains tax (CGT) or inheritance tax (IHT) liabilities in relation to offshore matters (corporation tax and VAT were not included).

The non-compliance date covers the period up to 6 April 2017 and those affected have until 30 September 2018 to notify HMRC and rectify historic tax problems, otherwise, they face the prospect of significantly higher penalties where HMRC discovers historic non-compliance after this date.

The 30 September 2018 deadline is not arbitrary as it coincides with the introduction of the Common Reporting Standard (CRS), which will see more than 100 countries globally exchange data on individual financial accounts. The data will significantly enhance HMRC’s ability to detect offshore non-compliance and sharpen its ability to recoup unpaid taxes.

‘Notify’ is the key word with the RTC. UK taxpayers who think they are affected should notify HMRC of their wish to disclose by 30 September 2018 and they then have up to 90 days to submit the relevant information.
The periods that the taxpayer has to review depends on the nature of the error or omission as set out below, and advice should be sought in this regard:

For income tax and CGT corrections:

  • Innocent error: four years from the end of the year of assessment. i.e., 2013-14, 2014-15 and 2015-16.
  • Careless error: six years from the end of the year of assessment.
  • Deliberate error or failure to make tax returns: 20 years from the end of the year of assessment.

Errors or omissions relating to 2016-17 or later years are not caught by the RTC or the associated failure to correct penalties. However, they will be caught by the general penalty regime applicable to offshore disclosure failings.

For IHT corrections:

Offshore tax non-compliance: 

Failure to correct relevant offshore tax non-compliance matters by 30 September 2018 could lead to high penalties, such as:

  • Standard penalty - a tax geared penalty of between 100% and 200% of the tax not corrected. 
  • Asset-based penalty - up to 10% of the value of the relevant asset where the tax at stake is over £25,000 in any tax year.
  • Enhanced penalty - a potential additional penalty of 50% of the amount of the standard penalty, if HMRC could show that assets or funds had been moved to attempt to avoid the RTC. 
  • In more serious cases - potential “naming and shaming” where over £25,000 of tax per investigation is involved.

There is scope to reduce the penalty, for example, by making a disclosure to HMRC. However, and as outlined above, where a disclosure is made, the RTC cannot reduce the penalties imposed below 100%.

No penalty will be chargeable where the taxpayer has a reasonable excuse for failing to correct the position. Indeed, a third-party review of individual tax positions during the RTC period would provide a strong defence should HMRC open an enquiry.

If you would like to discuss this further or would like our assistance in making a disclosure, please do not hesitate to contact Masum Ahmed or Terry Baldwin on 0208 309 0011.

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