Offshore tax compliance deadline approaches under the Requirement to Correct regime

Taxpayers have until 30 September 2018 to correct any errors in relation to their historic offshore tax affairs to avoid the imposition of punitive UK tax penalties.

The deadline for persons to correct any tax filing errors under the Requirement to Correct regime resulting from any historic offshore non-compliance expires on 30 September 2018. Failure to correct by this deadline may lead to punitive tax penalties of 200% of the tax due as well as other sanctions.

Background

The Requirement to Correct (RTC) regime was brought in by Finance (No 2) Act 2017 and introduced a statutory obligation for taxpayers with overseas assets to correct any compliance issues in their historic tax position. Persons who fail to correct their tax position for periods up to 05 April 2017 are liable to punitive penalties and other sanctions.

The RTC regime should be viewed against the background of international tax transparency measures which provide HMRC with increasing amounts of information concerning UK taxpayers’ assets in other jurisdictions. In this context, HMRC are more able to identify potential non-compliance with UK tax rules and take action against taxpayers. Accordingly, it is particularly important that taxpayers with overseas assets ensure that they are fully compliant with their UK tax liabilities.

The RTC and FTC regimes

The RTC regime was introduced to encourage all taxpayers who have offshore affairs to review their UK tax liabilities and ensure that their tax affairs are up-to-date and correct. Taxpayers have until 30 September 2018 to rectify any errors in their UK tax filing position.

If an error in relation to a taxpayer’s offshore tax affairs is not corrected by 30 September 2018, then the provisions of the Failure to Correct (FTC) regime will apply. The penalties applied by the FTC regime in these circumstances can include:

  • a one-off tax geared penalty of between 100% and 200% of the tax not corrected
  • potential “naming and shaming”, and
  • a one-off potential asset based penalty of up to 10% of the value of the relevant asset.

It should be noted that the RTC regime will apply not only to any actual omissions or inaccuracies in a return (including late returns), but also where the error is due to an underlying question of law or fact, such as where a person is domiciled. There is no requirement that any error or omission should be intentional or careless.

However, the RTC only applies if HMRC is able to raise an assessment to recover the unpaid tax on 06 April 2017, taking into account the normal time limits which apply.

If any non-compliance is not corrected by 30 September 2018, the only way to avoid any penalties under the FTC regime is if the individual can satisfy HMRC that there was a reasonable excuse for the failure to correct. However, where any failure results from “disqualified advice” that may not amount to a reasonable excuse. Advice will be disqualified if, inter alia, it is provided by a person who participated in or facilitated “relevant avoidance arrangements” or where it is not provided to the individual concerned taking into account their individual circumstances.

Comment

All UK taxpayers with offshore affairs should be reviewing their tax position to ensure that they are full compliant before the 30 September 2018 deadline. Any inaccuracies or failures which are discovered should be corrected by that date. Where questions of residence or domicile (or other questions of law) are involved, taxpayers should carefully document any advice received and ensure that advice is not “disqualified advice”. This may, in some cases, require a second opinion to be obtained from independent tax advisers not involved in the original arrangements.

HMRC’s guidance on the RTC regime can be found here.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.