The deadline for Requirement to Correct has passed. For many people who have overseas interests and issues with their historic tax position, the harsher Failure to Correct scheme will now apply (and the penalties that come with it).

In this blog, we’ll look at the various charges that will be levied against taxpayers who have failed to make a disclosure to HMRC, as well as the options available for appeal. Note that this blog will only provide a brief overview; if you are concerned about your position with regard to Requirement to Correct, we strongly recommend that you contact IBISS & Co without delay. One of our expert tax advisers will be able to provide more detailed guidance and – if possible – help reduce penalties, saving you time and stress.

Penalties: Essential Facts

Provided that the taxpayer has made a disclosure regarding underpaid taxes by the 30th September deadline, standard penalties/interest rates apply (up to 100 of any tax due).

If it is believed that a taxpayer has failed to make a disclosure to HMRC by the 30th September deadline, Failure to Correct charges will be imposed. The lowest level is 200 of the underpaid taxes. In addition, there are asset-based penalties – up to 10 of the asset value – and, should it be found that an asset has been moved from one jurisdiction to another (with the aim of preventing exchange of information), a further penalty of 50 of the potential lost revenue (PLR) will be charged. For the more serious cases of fraud relating to overseas assets (where taxes amount to £25,000+) the individual may also be ‘named and shamed’: an action that could have serious consequences for businesspersons (such as reputational damage) and also prove quite distressing to the involved parties.

However, it is possible to reduce these penalties by co-operating fully and making a comprehensive disclosure.

Penalties: Right to Appeal

All taxpayers who are subject to RTC penalties have the right to appeal both the decision and the specified amount. If the taxpayer has what is deemed to be a ‘reasonable excuse’, no penalty will be charged.

However, the circumstances under which HMRC will entertain this defence are very limited, and restrictions have been imposed as to what does not count as a reasonable excuse (more on that below). Ultimately any appeal will be judged individually based on the facts surrounding the case.

As mentioned, the argument for a ‘reasonable excuse’ is very limited: and the Failure to Correct legislation sets out scenarios in which a reasonable excuse cannot be argued for (such as having a lack of funds,  relying on another person to carry out certain actions, or when a reasonable excuse once applied but has since ceased to be relevant).

If the taxpayer took advice from a qualified professional – and consequent actions were taken as a result of said advice – they may have grounds to appeal. If the advice is deemed to be ‘disqualified’, however, this cannot be used as a ‘reasonable excuse’. Advice may be deemed disqualified if:

  • The person giving the advice wasn’t qualified to do so.
  • The person giving the advice did not take the taxpayer’s circumstances – or other relevant information – into account.
  • The advice was not given directly to the taxpayer.
  • The advice given related to a tax avoidance scheme.

Taxpayers who are concerned about guidance they may have received in the past are advised to have this refreshed as soon as possible, and to have an independent adviser assess the original advice. Should the latter action be taken, it should not fall into the ‘disqualified advice’ category provided that the professional concerned is truly impartial: they must not have been involved with the original matter in any capacity (either as an adviser or participant).

This blog is part of a series. Have you read part one, ‘Requirement to Correct: Are Your Affairs in Order?’, and part two: ‘Requirement to Correct Scheme: Deadline Approaches‘?

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