Requirement to Correct – tax due on offshore assets

Image credit Shuttershock

What is the Requirement to Correct?

The purpose of the Requirement to Correct (RTC) legislation is to require those taxpayers with undeclared offshore tax liabilities to disclose such liabilities to HMRC on or before 30 September 2018. Those who fail to do so will face severe financial penalties.

The Common Reporting Standard (automatic exchange of financial data on a global level) will greatly enhance HMRC’s ability to detect offshore non-compliance. It is, therefore, in the taxpayers’ interests to correct any historic issues in regard to their UK tax affairs.

To ensure there is an incentive for taxpayers to correct any offshore tax non-compliance on or before 30 September 2018 there are increased penalties for any failures to correct by that date.

The RTC applies to liabilities to Income Tax, Capital Gains Tax and Inheritance Tax involving offshore matters or transfers. It tackles offshore tax non-compliance. 

What is the deadline?

Taxpayers must take steps to correct their UK tax position by 30 September 2018.

If a disclosure is made under HMRC’s ‘Worldwide Disclosure Facility (WDF)’, HMRC need to be notified by 30 September 2018 through the WDF that a disclosure will be made. The disclosure itself then needs to be made within 90 days.  

What does HMRC want taxpayers to do?

HMRC wants all taxpayers who have or who had any offshore assets or financial arrangements to review their UK tax affairs to ensure that all tax returns are in order and that tax returns have been filed for all relevant years. Those who identify errors or failures to submit/notify in the past must rectify the situation before 30 September 2018.     

What are the penalties for not correcting by 30 September 2018?

If a taxpayer fails to correct on or before 30 September 2018, the ‘Failure to Correct’ (‘FTC’) penalty regime will be implemented. There are a number of elements to the FTC penalties, including:

  • a ‘standard penalty’ - tax geared penalty of between 100% and 200% of the tax not corrected.
  • an ‘asset based penalty’ – in serious cases, a penalty of up to 10% of the value of assets connected to the failure will be charged, where the tax at stake is over £25,000 in any tax year. This is in addition to the standard penalty mentioned above.
  • an ‘offshore asset moves penalty’ – an enhanced penalty equivalent to 50% of the amount of the standard penalty, where it can be demonstrated that assets have been moved in an attempt to avoid having details reported to HMRC under international agreements on exchange of information. This is in addition to the standard penalty.
  • ‘name and shame’ – in more serious cases, in addition to the above financial penalties, where over £25,000 of tax per investigation is involved, HMRC has the power to publish the offending taxpayers details.

If you would like assistance with a tax health check to ensure that you are fully compliant in the UK in regard to your offshore assets, please contact our Personal Tax Director, Simon Boxall, at simon.boxall@wardwilliams.co.uk 

About the author

Simon is the Tax Director at Ward Williams and has more than 20 years of practical experience working in the tax profession.

 

Specialising in personal tax, Simon qualified as a Tax Technician in 2007, having been awarded with the Ivison medal for attaining the highest mark in the Personal Taxation paper in 2006.

 

As department head, Simon oversees the tax team across the Ward Williams group, whilst managing a diverse portfolio of clients including high net worth individuals, doctors, directors of owner managed businesses, partnerships and sole traders.

simon.boxall@wardwilliams.co.uk

01895 236335