If you are a UK resident with offshore interests, and you’re concerned that you may not have paid the right amount of tax historically, now is the time to take action. Under the Requirement to Correct legislation (RTC), you have until 30th September 2018 to make full disclosure to HMRC, after which time substantial penalties will be incurred.
As of 6th April 2017, a new requirement was introduced to encourage taxpayers to improve accuracy with regard to the reporting of foreign income. The ‘Failure to Correct’ regulation, which is being brought in from 1st October 2018, means that any UK tax resident who fails to correct their historic tax position will face punitive fines (equalling up to 200 of the underpaid tax, as well as an asset-based penalty).
If you meet the criteria and have any uncertainties regarding the accuracy of previous tax returns, the advice is clear: act now. By the time the 30th September deadline comes around, over 100 countries will have shared financial data with each other: meaning that HMRC’s ability to monitor undisclosed foreign income will be much improved, and the likelihood of inaccuracies slipping through the net – whether these are due to suspicious behaviour or genuine mistakes – are greatly reduced.
The Requirement to Correct: Does it Apply to Me?
The Requirement to Correct applies to all taxpayers with overseas interests and historic undisclosed income (or issues with their tax position). It sets out an obligation for all affected parties to correct such issues by the stipulated deadline. Failure to comply will result in harsh penalties.
This new statutory obligation doesn’t apply to income tax alone; it covers capital gains tax and inheritance tax, and a number of people (from trustees to partnerships).
For more details regarding what needs to be reported on/corrected, and what financial elements HMRC will be seeking to harvest information on via the new process, please visit their guidance page. See below for some examples of the types of ‘non-disclosures’ HMRC will be looking out for:
- Any income from overseas assets – such as that which arises from property (sale of, rental, etc.).
- Non-disclosed inheritance.
- Non-disclosed income that has been earned in the UK and paid into an overseas bank account.
- Failure to submit an IHT account (in instances in which the asset is offshore).
The Requirement to Correct Period
The period commenced on 6th April 2017, and runs until 30th September 2018. All corrections must be made by this time.
The Requirement to Correct: What Should I Do Next?
The most important thing to do is check all returns – even if you are/were non-UK domiciled or consider yourself not to be/not to have been a UK resident during relevant periods. First, ensure that you submitted returns for all relevant years – if you received inheritance via an offshore bank account, or were paid for employment via such means, for instance, you may not have realised that you needed to disclose income (or you may have forgotten to do so).
Next, check all submitted returns and make sure that these are 100 accurate. Seek the advice of an experienced accountant or tax adviser: even if you are sure you have filed everything correctly, there may be gaps or errors in your tax returns due to the receipt of inaccurate advice in the past.
Should you identify any errors, it is your responsibility to notify HMRC in advance of 30th September 2018.
The Requirement to Correct: Penalties
When scrutinising your tax affairs, you may decide it’s best to contact HMRC anyway if in doubt – that way, you will be protected against further penalties should it be decided in future that additional tax is due. After 30th September, issues will become much harder to correct, and harsh penalties will be introduced.
- Any undeclared income/errors that haven’t been corrected will incur a fine of 100 – 200 of the tax due.
- Further penalties: avoidance fines (50 of the amount of the ‘standard’ penalty, should HMRC be able to prove that funds have been moved in an effort to deliberately avoid RTC) and asset-based penalties (if unpaid tax is over £25,000 during any relevant tax year, a penalty of up to 10 of the asset’s value may be incurred).
- Future investigations, which could uncover further errors (and therefore lead to additional penalties), and which pose a severe reputational risk to the individual or company under scrutiny.
If you’re concerned about your historic tax position, please contact IBISS & Co without delay. There is plenty of time to correct any mistakes and ensure that you avoid punitive measures. IBISS & Co’s experienced team will work with you to make sure that all information submitted is up to date and accurate, whilst undertaking strategy and planning measures to guarantee that – should additional payments be required – you do not lose money unnecessarily.
Even if you are certain that your historic reporting is precise, don’t hesitate to speak with us about performing a ‘health check’ on your current tax status, which will strengthen your position against future enquiries.