What is the Requirement to Correct?
In a bid to crackdown on offshore tax evasion in light of the Paradise Papers leak, HMRC issued a new legal obligation in the publication of the Finance (no 2) Act 2017. Referred to as the Requirement to Correct (RTC), it calls for anyone who has any undeclared offshore assets to correct any underpayment of tax in the UK by 30 September 2018. It applies to everyone, including those who consider themselves to be non-UK domiciled and/or a non-UK resident. The underpayment of tax relates to income tax, capital gains tax or inheritance tax.
What do taxpayers have to do for Requirement to Correct?
All taxpayers with offshore affairs should seek professional advice to review their tax liability. Where they identify any errors, they must submit their disclosure to HMRC by 30 September 2018. Failure to do so will result in significant penalties.
It is recommended that new professional advice is sought even where the taxpayer had previously followed advice in the first instance in order for fresh insight to take into consideration the new rules imposed by RTC.
What are the penalties for Requirement to Correct?
Severe sanctions have been introduced under the Fail to Correct (FTC) regime:
- The standard penalty is set at 200% of the tax liability owed. This can be reduced at HMRC’s discretion to no less than 100% and they will consider the level of co-operation, quality of disclosure and seriousness of the FTC.
- Where the tax liability exceeds £25,000 in any tax year, the penalty will be up to 10% of the value of the assets, in addition to the standard penalty outlined above.
- Where there is evidence to show movement of assets in order to avoid disclosure, the penalty will be 50% of the standard penalty in addition to the standard penalty itself.
Why RTC should be taken seriously:
The deadline of 30 September 2018 has been specifically set as it coincides with the Common Reporting Standard (CSR) data exchange. The CSR is where tax authorities in more than 100 countries share financial information and accounts with each other. HMRC will be able to receive information on UK taxpayers’ bank accounts, investments and trusts held around the world, therefore making it a much greater likelihood that they will find any undisclosed discrepancies.
The severity of the penalties is also an indication of how seriously HMRC are taking RTC. The penalties will be issued automatically and there will be no differentiation or leniency given to those who have failed to disclose with intent, through carelessness or through genuine mistake. What’s more, with the opportunity to collect such substantial amounts back in unpaid tax and through penalties, HMRC will certainly pursue any leads they find.
How Ridgefield Consulting can help:
- Perform historical review as to whether or not you owe outstanding tax relating to offshore affairs
- Prepare outstanding returns if necessary
- Act on your behalf to perform disclosures with HMRC