Taxpayers with undeclared offshore tax liabilities that occurred prior to 6 April 2017, including Income Tax, Capital Gains Tax or Inheritance Tax, are obligated to disclose these to HM Revenue & Customs (HMRC) on or before 30 September 2018 under the Requirement to Correct (RTC) regime.
The same rules apply to taxpayers with undeclared UK tax liabilities that involve offshore matters or transfers.
It is hoped that the deadline will encourage taxpayers to settle their affairs before HMRC begin to receive information from overseas territories under the Common Reporting Standard (CRS).
This exchange of financial data will increase HMRC’s ability to detect offshore tax liabilities, so it is in taxpayers’ interests to right any non-compliance.
Where tax is due because of non-compliance involving either an offshore matter or an offshore transfer, the unpaid tax is charged on or by reference to:
- income arising from a source in a territory outside the UK
- assets situated in a territory outside the UK
- activities carried on wholly or mainly in a territory outside the UK or
- anything having effect as if it were income, assets or activities of a kind described above.
This includes income or sale proceeds in the case of Inheritance Tax or any part of the income received or transferred abroad prior to 6 April 2017.
Failing to disclose these liabilities to HMRC, on or before the deadline, will result in Failure to Correct (FTC) penalties being issued. These are likely to be much higher than existing penalties.
The standard penalty starts at 200 per cent of any liability undisclosed under the RTC, which applies regardless of the reason for non-compliance. This can be reduced to reflect a combination of the following:
- your level of co-operation with HMRC
- and the quality of your disclosure
However, even with mitigation, the penalty cannot be reduced to less than 100 per cent.
Where the tax involved exceeds £25,000 in any tax year, and the taxpayer knew that they had relevant offshore non-compliance and didn’t correct it, the asset-based penalty at Schedule 22 to Finance Act 2016 will apply.
This is a penalty of up to 10 per cent of the value of assets connected to the failure to disclose. This is in addition to the standard penalty detailed above.
There is also an additional Offshore Asset Moves penalty, which is equivalent to 50 per cent of the amount of the standard penalty and is charged in addition to the standard penalty.
This enhanced penalty provision applies to the RTC rule and will be equivalent to 50 per cent of the FTC penalty.
In more serious cases, if more than £25,000 of tax per investigation is involved and the individual knew that they had relevant offshore non-compliance and didn’t correct it, HMRC may share their name and details publicly, as part of its ‘naming and shaming’ policy.
If a taxpayer corrects their position on or before the deadline, the tax and interest will be collected, and the existing penalty rules will apply, which will normally be much lower than 100 per cent.
If you are unsure about whether you need to make a disclosure, we would urge you to check your tax position. We can help you to review any historic issues and advise and assist with making any necessary disclosures to HMRC. For professional advice on this and other tax and accountancy-related matters, please contact us today on 01767 315010.