From now until 30th September 2018, if you are an individual, trustee or company (e.g. corporate non-UK resident landlord) who has foreign income and assets which may be liable to UK taxation, you have a window of opportunity to correct any aspect of your offshore taxes, otherwise you will face an increased chance of being detected by HMRC and also greater penalties.
Purpose of legislation
HMRC has introduced new legislation called the Requirement to Correct (RTC). This creates a new legal requirement for you to ensure that all undeclared UK tax liabilities involving offshore matters have been declared to HMRC by the 30th September 2018. After this date, there is a substantial increase in the penalty rates that HMRC will apply.
Furthermore, moving forwards HMRC will be using information provided under the Automatic Exchange of Information (AEOI) agreements to identify non-compliance involving offshore matters or offshore transfers; this is expected to significantly enhance HMRC’s ability to detect offshore non-compliance.
Scope of the RTC
The RTC will potentially affect you if you have an interest in assets held offshore or if you have offshore income. You are expected to correct any aspect of offshore tax non-compliance involving income tax, capital gains tax or inheritance tax.
Where the loss of tax to HMRC is due to deliberate behaviour on your part, you must report undeclared income and gains for up to 20 years from the end of the tax year in which the loss of tax to HMRC arose.
Scope of “offshore”
Offshore income or assets cover all income or assets held offshore, including those held in the Channel Islands, Isle of Man or the Republic of Ireland. Renting out a property abroad or transferring income or assets between countries could also create a UK tax liability.
Offshore matters include:
- 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
Offshore assets include (note that this list from HMRC guidance is not exhaustive):
- Art and antiques
- Bank and other savings accounts
- Boats
- Cash
- Debts owed to you
- Gold and silver articles
- Government securities
- Jewellery
- Land and buildings, including holiday timeshare
- Life assurance policies and pensions
- Other accounts, such as stockbroker’s or solicitors’
- Other bond deposits and loans
- Rights or intellectual property
- Stocks and shares
- Trusts
- Vehicles
What is offshore tax non-compliance?
This occurs when you have not paid tax which is due to HMRC, as a result of tax non-compliance relating to an offshore tax matter or an offshore transfer. This covers a multitude of situations, including:
- If you fail to notify HMRC about chargeability to income tax or capital gains tax relating to offshore matters
- If you fail to deliver a return or other specified documents to HMRC by the relevant filing date
- If you deliver a return to HMRC that contains an inaccuracy which leads to an understatement of tax due, a false statement of loss or a false claim to repayment of tax
Why 30th September 2018?
From 30th September 2018, around 100 jurisdictions expect to automatically exchange details held of offshore bank accounts and other assets held by their residents, under the Common Reporting Standards (CRS). HMRC expect that the CRS data they receive will enhance their ability to detect offshore non-compliance, thus it is in your best interests to correct any non-compliance before this date.
What are the consequences of non-compliance with RTC?
There are increased penalties if you fail to correct before 30th September 2018. If you fail to disclose the relevant information to HMRC by this date then the new penalty regime will apply, due to your failure to correct (FTC). The new FTC penalties are expected to be substantially higher than the current penalties, with a standard penalty of 200% of the potential lost revenue to HMRC (i.e. the unpaid tax) and a minimum penalty of 100% of the potential lost revenue.
You must correct your position by 30th September 2018 to ensure that you avoid these higher penalties.
Exceptions to FTC penalties will apply where you have a reasonable excuse as to why you did not make the required correction before 30th September 2018. A reasonable excuse is one such as a serious illness which prevented you from compliance, misleading advice from HMRC or in certain situations, incorrect advice from a professional advisor as to the nature of obligations (however you as a taxpayer still have a duty to take reasonable care).
What action to take
HMRC are increasing the penalties for non-compliance considerably for offshore tax matters. If there is uncertainty or complexity regarding your offshore tax matters, then you may need to consider your tax affairs in detail to ensure you have been fully compliant.
Both the Worldwide Disclosure Facility and the Digital Disclosure Service allow individuals to inform HMRC about previously undeclared income or assets.
It is important that you take action before 30th September to beat the deadline.
How can websters help?
Websters are unique in having in-house experts on overseas tax issues for UK tax payers as well as experts in assisting clients to negotiate favourable settlements with HMRC, when additional tax has to be paid on offshore matters.
We have international tax specialists based in Cambridge and Sydney and our Chief Executive is a former senior tax inspector. We have negotiated settlements ranging from a few hundred pounds to hundreds of thousands. If you require any advice please contact Trishna Shah who can arrange an appointment. If you feel that you may have a tax problem and wish to discuss this confidentially then please let us know.