The ‘Requirement to Correct’ scheme was introduced on the 6thApril 2017: a new programme aimed at improving accuracy with regard to the reporting of foreign income. Over the summer, HMRC issued revised guidance relating to this requirement. Our blog sets out the key points to heed ahead of the 30th September deadline.

If you’re a taxpayer with overseas interests and have any undisclosed income (or historic issues with your tax position), the Requirement to Correct scheme is likely to affect you. The new rule applies to different kinds of tax – from capital gains to inheritance – and a variety of people (trustees, partnerships, etc.).

The list below covers some of the ‘non-disclosures’ HMRC will be looking for. For further guidance, please consult a qualified tax professional or visit the official guidance page.

  • Non-disclosed inheritance and income that has been paid into an overseas bank account (but which has been earned in the UK).
  • Income from overseas assets (for example, that which arises from property: sale of, rental, etc.).
  • Non-submission of an IHT account (when the asset is offshore).

Requirement to Correct Scheme: Extension to Deadline

The 30th September deadline is looming: after this point – from 1st October onwards – the strict ‘Failure to Correct’ programme commences. Under this scheme, if an individual is deemed to have failed to correct their tax reporting, penalties of up to 200 of the tax due can be imposed – so it’s imperative to take the deadline seriously.

However, HMRC recently revised their guidance to include provisions for an extension to the initial disclosure period. If an extension is granted, taxpayers will be able to avoid the harsher Failure to Correct penalties. In order to qualify for the extension, taxpayers must:

  • Get in touch with HMRC. HMRC need to be informed by the 30th September that the taxpayer wishes to make a disclosure of deliberate non-compliance. Submissions should be made via HMRC’s Contractual Disclosure Facility process.
  • Register for the Worldwide Disclosure Facility (WDF). This needs to be done by midnight on Sunday 30th.
  • Inform their HMRC caseworker (if an enquiry into the relevant taxpayer’s affairs is currently underway)and provide a disclosure outline by 29th.
  • Please note: the 30th September deadline is a Sunday. It is therefore recommended that any attempts to contact HMRC (or register) are conducted on Friday 28th September (indeed, the deadline for registering with HMRC via telephone is 4pm on the 28th).

Requirement to Correct Scheme: Clarification Regarding Penalties

Within the updated guidance, HMRC have confirmed that:

  • Penalty mitigation is available, and the amount they will give depends on the level of assistance provided by the taxpayer. If a taxpayer ‘tells’, up to 30 of the maximum available reduction will be offered; similarly, if a taxpayer gives access to records, up to 30 of the maximum reduction will be available; and if a taxpayer ‘helps’, up to 40 of the maximum available reduction will be offered.
  • In instances where the disclosure is not voluntary, the minimum penalty level will be increased – from 100 to 150 .

Nil Disclosures

Don’t forget: HMRC’s guidance stipulates that, provided HMRC has received all the relevant information regarding an individual’s tax position prior to 30th September 2018, the more extreme Failure to Correct penalties will not be applied. As such, if there is any doubt regarding offshore assets, etc., the best strategy is probably to submit everything now and make a ‘nil disclosure’ (a disclosure stating that no tax is due). Even if HMRC disagree with this, the fact that the information has been received within the initial disclosure period should ensure that higher penalties are not imposed.

The deadline may be looming but there is still time to make the necessary corrections to your historic tax position. If you’re worried about the Requirement to Correct scheme or need advice on how to proceed, please contact IBISS & Co without delay.

This blog is part of a series. To read the first part, visit ‘Requirement to Correct: Are Your Affairs in Order?‘.

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