HMRC’s Latest Guidance on the Requirement To Correct (RTC)

Extra time before penalties?

No it’s not the World Cup, it’s HMRC’s latest guidance on the Requirement To Correct (RTC).

The Requirement to Correct was introduced in Finance (No 2) Act 2017 and required taxpayers to correct historic UK tax issues in respect of offshore income, assets and activities.

If they fail to act, they will face sanctions including punitive financial penalties.

Those penalties include:

  • Tax-geared penalties of between 100% and 200% of the uncorrected tax liabilities;
  • A potential asset-based penalty of up to 10% of the relevant asset where the tax at stake exceeds £25,000 in any tax year.

Originally taxpayers were required to correct their position in respect of periods up to 5 April 2017 by 30 September 2018.  This remains the legal position.  However, HMRC’s latest guidance confirms that in three circumstances, RTC penalties will not be raised where the information is provided to HMRC by 29 December 2018 at the latest.

Those three circumstances are:

  1. If by 30 September 2018, you notify your intention to make a disclosure under the worldwide Disclosure Facility by registering through HMRC’s Digital Disclosure Service;
  2. If by 30 September you email a completed CDF1 to HMRC and inform HMRC that you wish to make a disclosure of tax non-compliance via HMRC’s Contractual Disclosure Facility. If that request is agreed, you must then submit your outline disclosure within the usual 60-day time limit for such disclosures.
  3. If HMRC already has an open enquiry, you inform the person conducting the enquiry that you wish to make a disclosure of offshore tax non-compliance and you then submit an outline disclosure to that person by 29 November 2018.

Tax Non-Compliance

To recap, RTC covers individuals, partnerships, trustees and non-resident landlord companies with undeclared UK income tax, capital gains tax and inheritance tax liabilities arising from ‘offshore matters’.

The legislation defines offshore matters as:

  • 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 where income, assets or activities as described above.

There is no requirement to be a UK resident to have a relevant liability.  Trustees of offshore trusts with ten-year anniversary inheritance tax charges and non-UK companies with rental income from UK property are also potentially impacted.

Next steps

Taxpayers with current and previous offshore financial connections should review their positions as a matter of urgency, notwithstanding the extension in the deadline.

Their review should include;

  • Ensuring that any historic planning with an overseas element is reviewed to check that is has been correctly implemented;
  • Considering whether advice taken in the past was refreshed when the law or circumstances changed;
  • Reviewing claims to be non-UK resident or non-UK domiciled to confirm that they are technically sound;
  • Reviewing remittances by non-UK domiciled taxpayers claiming the remittance basis;
  • Reviewing offshore structures including trusts and companies in light of the extensive anti-avoidance legislation applying to these areas.

Undertaking a comprehensive review of a taxpayer’s position may provide a defence if HMRC subsequently argues that there are historic liabilities that were not corrected.

Making a Disclosure

Disclosures can be made through the Worldwide Disclosure Facility, a facility opened on 5 September 2016.  Registration for this is through HMRC’s Digital Disclosure Service portal.

If, however, omissions are identified that were deliberate, substantial and have occurred over a significant period, or in relation to a period that has previously been subject to investigation or disclosures made, then the Contractual Disclosure should be considered.  While managing such disclosures, is more complex and onerous than the ‘streamlined’ Worldwide Disclosure Facility, the additional costs and complexity should be weighed against the risk of criminal investigation.

Learn more about the RTC and worldwide disclosure facility or offshore evasion and common reporting standards and check out our international tax and offshore trust services for more information on these important taxation matters.

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