HMRC introduced “Requirement to Correct” (“RTC”) legislation to encourage those with undeclared offshore tax liabilities (relating to Income Tax, Capital Gains Tax or Inheritance Tax) to disclose such liabilities before 30th September 2018. The deadline coincides with the date by which more than 100 countries will exchange data under the Common Reporting Standard (“CRS”). It is anticipated CRS data will provide HMRC with sufficient information to identify extensive offshore non-compliance.
From 1st October 2018 the “Failure to Correct” (“FTC”) regime will apply and taxpayers will be subject to tougher penalties of up to 200% of the tax liability which should have been disclosed before 30th September 2018 under the RTC (“the standard FTC penalty”).
There are ways to mitigate the standard FTC penalty. When assessing whether or not to reduce the standard FTC penalty below 200%, HMRC will consider the taxpayers level of co-operation, the quality of disclosure given (including notifying HMRC of anyone who helped enable the non-compliance) and whether they came forward voluntarily to notify HMRC of their non-compliance. A liability reduction could reduce the penalty from 200% to 100% of the tax involved. Crucially, failure to come forward voluntarily will limit any such penalty reduction to 150% of the tax involved.
HMRC has also introduced the “Offshore Asset Moves Penalty” of 50% of the standard FTC penalty applied to the tax liability in cases where it can be shown that assets were moved out of a jurisdiction in an attempt to avoid details being reported to HMRC under common reporting regimes or exchange of information agreements.
In addition to the standard penalties described above, HMRC may seek to apply an asset based penalty of up to 10% of the value of the assets connected to the non-compliance where:
To avoid the substantially increased penalties under the FTC regime, the taxpayer must supply HMRC with all the information required to calculate the tax due as a result of non-compliance before 30th September 2018.
In limited circumstances, the taxpayer may be able to supply information later than the deadline (and still fall under the RTC regime, rather than the FTC) if, by midnight on 30th September 2018, the tax payer notifies HMRC of an intention to make a disclosure under the Worldwide Disclosure Facility by registering via the Digital Disclosure Service. For the RTC to apply, the disclosure process must be completed in full within the 90-day time limit required by the WDF.
Given the looming deadline and the vast amount of information being exchanged under CRS, it is in the taxpayers’ interest to correct non-compliance before the 30th September 2018 deadline or to take the initiative to disclose their own non-compliance after the deadline but before HMRC opens an enquiry in to the non-compliance as a result of the additional information available to them under CRS.
If you have any questions on this briefing note or if you are in any doubt about your personal tax position and a potential offshore non-compliance please contact Robert Macro or Katie Underhill of Druces LLP
This note does not constitute legal advice but is intended as general guidance only. It is based on the law in force in September 2018.