Offshore matters and the “requirement to correct” any irregularities; time is running out!

8 May 2018

HMRC introduced new legislation in the Finance (No. 2) Act 2017 requiring those with undeclared offshore tax liabilities (Income, Capital Gains or Inheritance Taxes) to disclose the liabilities to HMRC. This has to be done on or before 30 September 2018 (and tax needs to be settled).

30 September 2018 is the final date for the disclosure and this coincides with the date more than 100 countries will exchange data on financial accounts under the Common Reporting Standard.  In theory, HMRC’s ability to identify offshore non-compliance should increase very significantly and therefore, all taxpayers should take this opportunity to ensure that their affairs are in order before the deadline passes.

Failure to report any relevant information on or before 30 September 2018 means the taxpayer would be subject to the new ‘Failure to Correct’ penalty regime, which is much harsher than the normal penalty regime, with a minimum penalty of 100% of the tax unpaid! The Requirement to Correct (“RTC”) legislation can also be applied in respect to periods prior to 6 April 2017.

The RTC can only apply if HMRC are able to raise an assessment to recover tax unpaid on 6 April 2017.  The most relevant time limits are as follows:

  • Loss of tax is NOT due to careless or deliberate behaviour – 4 years from end of tax year of assessment in which the tax loss arises.
  • Loss of tax is due to careless behaviour – 6 years from the end of tax year
  • Loss of tax is due to deliberate behaviour – 20 years from the end of the tax year

Where there has been a failure to notify HMRC of chargeability the times limits are different.

Failure to Correct

The penalties for failure to correct by or on 30 September 2018 become much harsher (contrasted with exposures if disclosure is made prior to this date).

In future, there will be a standard minimum penalty of 100% rising to a potential 200% of the tax that should have been paid and wasn’t.  This penalty can, to a degree, be reduced based on the taxpayer’s level of co-operation with HMRC (the quality of the disclosure and the seriousness of the original failure to correct). The maximum reduction reduces exposure to 100% of the tax.

With more serious cases (where the tax in any tax year exceeds £25,000 and the individual knew that matters should have been addressed previously), an ‘asset based’ penalty can be applied. In such circumstances, up to 10% of the value of the underlying assets connected to the failure can be charged (confiscated). This asset based penalty is in addition to the standard penalty.

HMRC can also introduce penalties where an individual has moved their assets to avoid having the details reported to HMRC under the exchange of information provisions of international agreements. For more serious cases, HMRC can name and shame individuals for their actions.

Examples of offshore assets may include, but are not limited to the following:

  • Art and antiques
  • Bank accounts
  • Debts owed to you
  • Land and buildings
  • Life assurance policies
  • Stocks and shares/overseas portfolio
  • Trusts

A taxpayer can correct any offshore irregularities by using a number of alternative HMRC disclosure facilities.

The above is an introduction to what is a potentially complex matter and provides a glimpse of the potential costs associated with ignoring the requirement to correct.

If you have any concerns relating to your tax affairs and non-UK situs assets or sources of income, please do get in touch to discuss further. The window of opportunity for a relatively painless disclosure closes in four months, at the end of September 2018. Time is running out…


  • For further information please contact:

    Raj Seewooruttun

    Assistant Manager, Tax, Wells

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