UPDATE – Time to Correct Offshore Tax Position
Please note that this article was updated on 1 August 2018. Please see the bottom of the article for further information.
Individuals who have undeclared UK tax liabilities arising from offshore income or assets must disclose such items to HMRC under the requirement to correct (RTC) and pay any tax that is owed by 30 September 2018, or face a more severe set of penalties under failure to correct (FTC).
HMRC have begun contacting individuals who have sources of offshore income/gains requesting that they consider whether their UK tax compliance obligations have been met. There are generally 2 kinds of approach:
- HMRC have received information regarding unreported income/gains in an overseas country/territory, and are contacting you to correct your UK tax position.
- HMRC are aware that you have offshore income/gains (as these have been reported in the UK), and are prompting you to double check your tax position in advance of the more severe RTC penalties coming into effect from 30 September 2018.
If you are unsure whether you have additional UK tax liabilities, please contact a member of our team for a no-obligation chat.
In previous years, HMRC have provided a number of disclosure opportunities to encourage taxpayers to come forward and correct their UK tax compliance in respect of their offshore interests. More recently, the government have introduced criminal offences for tax evaders and their facilitators in a further push to tackle offshore tax avoidance.
In September 2018, the UK will be adopting the Common Reporting Standard, which will allow the exchange of financial information between the UK and over 100 other countries. Following this, taxpayers who have failed to come forward and correct their offshore non-tax compliance will face a more severe set of sanctions.
Taxes and Penalties
The RTC legislation covers Income tax, Capital Gains Tax and Inheritance Tax which has not been corrected by 5 April 2017, and therefore may be assessed by HMRC on 6 April 2017 (or 17 November 2017 for Inheritance Tax). Time limits for HMRC to make an assessment to recover tax where it has been under declared on a tax return will depend upon the behaviour of the taxpayer, and HMRC may go back as far as 20 years where appropriate. See below:
• Up to 4 years after the end of the relevant year of assessment for errors made despite taking reasonable care;
• 6 years where the tax loss is due to carelessness; or
• 20 years where the tax loss was brought about deliberately.
Where a taxpayer has failed to notify HMRC of any liability, HMRC may go back 20 years unless there is a reasonable excuse.
Where a taxpayer’s offshore liabilities remain uncorrected by 30 September 2018, a standard penalty of 200% of the tax liability could apply under failure to correct, with a minimum penalty of 100% of the tax involved. Where a taxpayer does not come forward voluntarily, the minimum penalty will not be reduced beyond 150% of the tax involved.
In the most serious cases, where the tax involved exceeds £25,000 in any tax year and the taxpayer was aware of their offshore tax compliance, but did not correct, a penalty of 10% of the value of the assets connected with the failure could apply, in addition to the standard penalty above.
Furthermore, an additional enhanced penalty (equivalent to 50% of the standard penalty) may be applied in cases where it can be shown that you moved assets to avoid having details reported to HMRC under international agreements on exchange of information.
Where a taxpayer believes that they may have undeclared offshore tax liabilities, they should review their position for the years in question. The FTC penalties apply irrespective of taxpayer’s behaviour and so no account will be taken where underpayment of tax is deliberate, or where reasonable care has been taken.
Further guidance is to be published by HMRC in Spring 2018, detailing exactly what needs to be done by taxpayers by 30 September 2018 to meet their requirement to correct. If you have any doubts or queries regarding your offshore tax liabilities, and/or you need assistance making a disclosure, please contact a member of our team for a no-obligation chat.
HMRC have updated their guidance and have confirmed the relevant deadlines and how the penalties may be reduced.
In particular, HMRC have confirmed that penalties will not be applied where they have not received all of the necessary information by 30 September 2018, provided that before this deadline:
- The taxpayer has registered to use the Worldwide Disclosure Facility (extension to deadline of up to 90 days)
- The taxpayer advises HMRC that they wish to make a disclosure involving deliberate behavior and offshore non compliance under the Contractual Disclosure Facility (extension to deadline of up to 60 days)
- There is already an ongoing inquiry and the taxpayer notifies HMRC that they wish to make a disclosure of offshore non compliance (extension to deadline of up to 60 days)