Failure to correct tax liabilities by the deadline will leave individuals open to new, tougher failure to correct (FTC) penalties. The obligation under the RTC only applies to liabilities to income tax, capital gains tax and inheritance tax which result because of non-compliance that involve offshore matters or transfers.

In all cases where a penalty applies, there will be a standard penalty equivalent to 200% of the tax liability which should have been disclosed to HMRC under the RTC but was not.

This penalty can be reduced to reflect any combination of a number of factors, including the taxpayer’s level of co-operation with HMRC and the quality of their disclosure (including telling HMRC of anyone who helped enable the non-compliance).

The reduction will take account of whether the individual came forward voluntarily to tell HMRC of their failure, but the reduction cannot reduce the penalty to less than 100% of the tax involved.

If the taxpayer has not come forward voluntarily the penalty will not be reduced below 150% of the tax involved.

The reduction will depend on how much assistance an individual provides to HMRC.  For telling, or for giving access to records, HMRC will give up to 30% of the maximum reduction, rising to 40% for helping.

To receive the full reduction individuals must also provide additional information about anyone who encouraged, assisted or facilitated them to carry out offshore tax evasion or non-compliance.

In the most serious cases, where the tax involved exceeds £25,000 in any tax year, and an individual knew they had relevant offshore non-compliance and did not correct it the asset-based penalty at Schedule 22 to Finance Act 2016 will apply. This means a penalty of up to 10% of the value of the connected to the failure will be charged, in addition to the standard penalty.

The enhanced penalty provision under Schedule 21 to the Finance Act 2016 (c. 24) relating to the moving of assets applies to the RTC rule and will be equivalent to 50% of the failure to correct penalty.

Corrections

HMRC’s guidance advises that taxpayers can correct any offshore tax non-compliance on or before 30 September 2018 in a number of ways, including using the digital disclosure service as part of the worldwide disclosure facility (WDF), telling an HMRC officer in the course of an enquiry, or by delivering the requisite return or document or amending inaccuracies.

Notifications made by midnight on 30 September 2018 via WDF will not be liable to penalties for any failure to correct provided the disclosure process is completed fully and accurately within the 90-day time limit required by the WDF.

HMRC’s guidance underlines that taxpayers who opt for this route must supply all of the required information by 29 December 2018 at the latest.

There are separate rules for those who want to advise HMRC of offshore tax non-compliance via the contractual disclosure facility (CDF) which has a 60-day time limit. If a taxpayer makes an outline disclosure by 29 November 2018, they will not be liable to penalties for the failure to correct any issue detailed in the outline disclosure provided they continue to fully co-operate with the enquiry to its conclusion.

No tax due

In its guidance HMRC says it can see no reason for taxpayers to make a disclosure that no tax is due except where they have doubt about whether tax is correctly due.

When making such a disclosure they should therefore set out a full explanation of why they have doubt about whether tax is due and set out all of the relevant facts that they took into account in deciding this.

They should also provide an indication of the amount of income, gains and similar that they think are not liable to tax, using four categories: less than £10,000; between £10,000 and £75,000; between £75,000 and £500,000; more than £500,000.

If a taxpayer does this, provided the information supplied is accurate, the penalties for a failure to correct will not be due if it later transpires that additional tax is due as a result of the issue.

HMRC will acknowledge the information has been supplied but the offer to pay no tax will not be formally accepted.

Guidance Requirement to Correct tax due on offshore assets is here

Report by Pat Sweet