Requirement to correct

HMRC introduced requirement to correct (RTC) legislation as part of the Finance (No.2) Act 2017. Under this legislation, taxpayers had to bring their offshore tax affairs up to date by 30 September 2018 or face significantly increased penalties. 

For these purposes, offshore includes UK tax arising on both assets and investments held offshore. It could also potentially cover UK assets where income is paid overseas, to a non-UK resident for example.

The RTC window has now passed, meaning previously undeclared offshore tax liabilities will be subject to harsh failure to correct (FTC) penalties.

Failure to correct

Under the FTC legislation, errors in returns for overseas matters are liable to a maximum penalty of 200% of the under-declared tax. These FTC penalties apply irrespective of the taxpayer’s intent, meaning innocent errors are treated in the same way as deliberate omissions.

The only way to mitigate the level of FTC penalty is through co-operation with HMRC and by coming forward voluntarily. You can do this by registering for a disclosure under the worldwide disclosure facility (WDF). Even in these situations, the minimum penalty will be 100% of the tax liability for unprompted disclosures, or 150% for prompted disclosures – unless it can be argued that a reasonable excuse should apply.

A further penalty of up to 10% of the value of relevant offshore assets may apply, and there can be public naming in more serious cases.

How we can help

Our tax risk and investigations management team is experienced in advising on and managing HMRC disclosures and investigations to secure the best possible outcome. Our private client tax team also has a wealth of experience in advising clients on complex offshore arrangements, including how these should be structured and managed to mitigate UK and worldwide tax exposure.

Drawing on the depth of experience in our combined teams, we can support you to address the potential risk of RTC, including reviewing existing arrangements to:

• provide an independent expert technical view as to their effectiveness;
• advise on their robustness and ways they can be improved;
• advise on how best to address any issues; and
• deal with disclosures to HMRC under the WDF to ensure that FTC penalties are kept to a minimum.

If you would like to discuss any concerns, please contact us directly on +44 (0)800 032 8374 or tax.disputes@rsmuk.com. We can help you ensure compliance for your peace of mind.