Read on to find out who has a Requirement to Correct (RTC) tax due on undisclosed offshore assets, when a correction must be made and what are the penalties for non-compliance.

The purpose of this legislation is to require those individuals with undeclared offshore tax liabilities, relating to Income Tax, Capital Gains Tax or Inheritance Tax, to disclose those liabilities to HMRC before 30 September 2018. This legislation applies to non-compliance prior to 6 April 2017.

The date, 30 September 2018, was chosen as this is the date that more than 100 countries will exchange data on financial accounts under the Common Reporting Standard (CRS). This new data will significantly increase HMRC’s ability to detect offshore non-compliance and it is in individuals interests to correct any non-compliance before this data is shared.

The new legislation creates an obligation for anyone who has undeclared UK tax liabilities that involve any offshore matters or transfers, to disclose the relevant information to HMRC by 30 September. Failure to disclose the relevant information will lead to a ‘Failure to Correct’ penalty. These penalties will be much higher than existing penalties. The minimum penalty is 100% of the tax involved.

Who is affected?

Anyone who owns or has an interest in assets held offshore or has a source of income that is offshore or has moved income or the proceeds of capital gains offshore. For example, interest arising on an off-shore bank account would be caught by this legislation. This is retrospective legislation so can apply to assets owned prior to 6 April 2017.

Penalties for correcting on or before 30 September 2018

Currently penalties can be up to 100%of the liability. However, the level of penalty is determined by whether you notify HMRC of the liability without prompting, and then penalties can be further reduced by your co-operation with HMRC. The level of penalty for correcting before 30 September 2018 is likely to be less than 30% of the liability.

Penalties for not correcting on or before 30 September 2018

In all cases where a penalty applies there will be a standard penalty equivalent to 200% of the tax liability which should have been disclosed to HMRC under the RTC but was not. This penalty can be reduced to reflect any combination of the following factors:

  • Level of co-operation with HMRC
  • The quality of your disclosure to HMRC – this includes telling HMRC if anyone helped enable the non-compliance

The reduction will take account of whether you came forward voluntarily to tell HMRC of your failure but cannot be reduced to less than 100% of the tax involved. If you do not come forward voluntarily the penalty cannot be reduced to less than 150% of the tax involved.

If you fail to make a correction but have a reasonable excuse you will not face a penalty, but you will still have to pay the tax and interest due.

There are specific circumstances that do not qualify as a reasonable excuse, for example saying you had relied on advice provided to you.

If you have any doubt you should review your UK tax affairs so that you can make any necessary correction by 30 September 2018. The RTC provides a window of opportunity for you to correct any issues you have with your offshore interests and you should take this opportunity to review your position to satisfy yourself that you are fully compliant.

If you would like to discuss this in more detail or would like some help making a disclosure to HMRC please get in touch today.

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