The UK's Requirement to Correct
The clock is ticking on your opportunity to bring your affairs up to date under the Requirement to Correct (RTC) regime!
Dated: 2 August 2018 Author: Eleanor Lewis
What is RTC?
A statutory obligation for taxpayers with overseas assets to correct any issues with their historic UK tax position that have arisen before 6 April 2017. Those who don’t correct issues by the deadline face weighty financial penalties and other severe sanctions under the Failure to Correct regime.
Who does it apply to?
Any person with a potential undeclared UK income tax, capital gains tax and/or inheritance tax liability arising on offshore assets before 6 April 2017. “Person” is defined as an individual, partnership, trustees or non-resident landlord companies.
Why is RTC important?
- The Common Reporting Standard (“CRS”) takes effect across more than 100 countries from 30 September 2018. Due to the increase in and ease of sharing information globally that the CRS will allow, HMRC will be more likely than ever to spot non-compliance here in the UK, whether it’s a genuine mistake, carelessness or deliberate action.
- Failing to fix issues by the deadline will mean significant penalties!
What is the deadline?
- Corrections must be made by 30 September 2018.
- After this date, the Failure to Correct (“FTC”) regime will start, which means penalties and sanctions that are far more severe than the existing penalty regime in place for incorrect returns and underpaid tax.
What are the penalties?
- A standard tax geared penalty of 200% of the tax not corrected, with th potential to reduce this to a minimum of 100% of the tax, dependent on the behaviour of the taxpayer in disclosing the correction;
- In addition, a potential asset-based penalty of up to 10% of the value of the relevant asset where the tax at stake is over £25,000 in any tax year;
- Potential ‘naming and shaming’ where over £25,000 of tax per investigation is involved;
- And in addition to all the above, a potential enhanced penalty of 50% of the amount of the standard penalty, if HMRC could show that assets or funds had been moved to attempt to avoid the RTC.
No penalty will be charged if the taxpayer has a “reasonable excuse” for failing to correct the position. A ‘health check’ of a taxpayer’s position by a qualified adviser during the RTC period is likely to provide a strong defence.
However, under the RTC HMRC will not accept as a reasonable excuse for non-disclosure advice given that is “disqualified advice”. Disqualified advice can be any of the following:
- Advice given by an “interested person”;
- Advice given by someone not qualified to give such advice;
- Advice that didn’t take into account any relevant information or circumstances;
- Advice provided to someone other than the taxpayer who hasn’t made the disclosure.
What should I do now?
- If you have or have had any offshore financial connections – you should review your UK tax affairs to ensure that all UK tax returns are correct;
- Make sure you have submitted UK tax returns for all years for which you owed UK tax on income or gains;
- Check whether advice taken in the past was refreshed when the law or your circumstances changed;
- Review offshore structures, anti-avoidance legislation and remittances;
- If you find an error or failure to submit/notify in the past, rectify the situation before 30 September 2018; and
- You may want to submit disclosures where there is doubt over a technical position in order to protect your position against Failure to Correct sanctions in case HMRC later enquire.
Up-to-date information with example case studies and any updates or changes to the RTC regulation can be found at the HMRC website:
Although you don’t have to instruct an agent in this matter, the importance of making correct disclosure, and the complexities often involved with offshore assets coupled with the punitive penalties that HMRC can take if there are any errors, mean that we would strongly advise you to seek professional assistance.
How can Dains help?
- We can help you with a Tax Health Check to review your historic position and, where appropriate, approach HMRC with a disclosure;
- There is still a window of opportunity for us to review your position and make sure that any mistakes or errors are corrected. It is crucial for the purposes of mitigating the penalties that unprompted and cooperative disclosure is made as soon as possible, if a disclosure if required.
- If you are concerned that advice you took when you made the decision not to disclose may be “disqualified advice” (see above), we can review that advice and give you a view on whether it should be looked at again.
Need further assistance?
For further information please contact us on 0800 298 3899 or submit an enquiry via our contact us form.