Taxpayers now have less than two months to ensure their affairs in relation to any offshore assets are in order as respects HMRC, or face severe penalties

There are now around two months until time runs out to comply with HMRC's Requirement to Correct (RTC) rules.

Over the past 10 years, HMRC has put together various beneficial disclosure programmes to encourage people to regularise their offshore tax affairs. RTC – and the very strident penalties they introduce – signals a sharp move away from this approach.

With the recent addition of things such as the common reporting standard (CRS), HMRC will have huge visibility of UK residents' worldwide investments from October 2018, the likes of which has never previously been available to them. CRS alone will see more than 100 countries sharing details of individuals' assets and income.

Penalty regime

HMRC will introduce very serious fines for irregularities in offshore tax affairs from 1 October 2018.

Penalties will start at 200% of any undeclared tax liability on offshore issues. They can be reduced, but not below 100%. Of course, in addition to this, you will also need to pay the unpaid tax and statutory interest that is owed.

The financial charges aren’t the only sanction available to HMRC. Individuals who fail to comply can be “named and shamed” on its website.

The RTC rules cover errors and oversights, as well as what HMRC judges to be a lack of “reasonable care” or deliberate tax evasion. And, they can apply not just to individuals, but also to trustees and companies.

Ignorance is not bliss

RTC could affect many individuals who might not even realise that it applies to them.

They may have declared offshore income each year. However, where HMRC can show that they have made technical errors when doing so, or are deemed not to have not taken reasonable care, they will fall foul of the regulation.

As such, the unwary could be hit with potentially huge fines for failing to correct liabilities by 30 September 2018 – unless they have a “reasonable excuse” for not having done so. For the purposes of RTC, HMRC may not consider following the advice of a professional tax adviser to be a reasonable excuse.

Time to act

With the RTC deadline fast approaching, time to take action is running out.

If you have investments or bank accounts outside the UK, we would advise that you take action now to ensure you are comfortable that everything is in order; don’t wait to see if HMRC finds fault.

For additional comfort you may seek a review of your offshore tax position as soon as possible.

The aims of this review should be to:

  • identify any inherent risks in your offshore financial affairs;
  • clarify how these are being managed;
  • consider any arrangements HMRC might challenge;
  • review these to make sure your tax position is robust.

If your evaluation highlights any irregularities, you'll need to make a voluntary disclosure by 30 September 2018.

We would strongly recommend seeking the advice of a tax adviser when reviewing your offshore investments and when considering any relevant disclosures. The technicalities involved are complex and the tax years to be included in disclosures will depend on your past behaviour, as will any penalties imposed.

The Author
Kenny MacDonald is director of Tax Services with Turcan Connell
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