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Requirement To Correct Offshore Tax Non-Compliance

Urgent action needed by 30 September 2018

With the enactment of the Finance (No 2) Act 2017 on 17 November came the introduction of significant penalties for those who fail to carry out corrections to their tax affairs before 30 September 2018.

The requirement to correct (RTC) requires taxpayers with offshore non-compliance issues committed on or before 5 April 2017, to correct the position before 30 September 2018.

In effect HMRC are offering a window of opportunity for those with unpaid tax liabilities arising on or from offshore assets.

Under the existing penalty regime, with full unprompted disclosure and co-operation, this is likely to result in penalties of between 10% and 30% on tax underpaid, as well as the tax itself and interest.

However, for individuals who wait until after 30 September 2018, strict statutory penalties will now apply starting at 200% of the underpaid tax, with a possible mitigation down to 100%.

It will not matter if the liability arose pre or post-September 2018 or whether the liability arose from careless behaviour, an honest mistake or otherwise. In other words, all liabilities will be exposed, regardless of the cause.

Some more common examples may include taxable distributions or benefits received from offshore trusts but not declared, undeclared interest received from overseas bank accounts, rental income from overseas rental property or gains on disposals of overseas assets.

In addition, it is worthwhile noting that in the Chancellor’s Autumn Budget (22 November 2017) a consultation was announced with regard to extending the current time limits of 4 and 6 years to 12 years for HMRC to assess offshore non-compliance. This consultation will be issued in Spring 2018. This would be a significant extension to the current time limit for non-deliberate behaviour. In essence, taxpayers will in future have far less certainty over historic offshore tax matters, particularly where genuine mistakes have been made.

What taxes are included?

Income Tax, Capital Gains Tax and Inheritance Tax.

Are there other penalties?

Yes, as well as the tax geared penalty of up to 200% of the underpaid tax:

  • There is an asset based penalty that may apply, on up to 10% of the value of the relevant asset.
  • A potential supplementary penalty of up to 50% of the failure to correct penalty, where deliberate evasion by moving assets around offshore is proved.
  • Possible naming and shaming where over £25,000 of tax is at stake.

How can Saffron help?

If on reflection, you have any concerns, please get in touch with your usual Saffron contact who will be happy to discuss the matter with you.