Chartered Accountants and Professional Business Advisers

Requirement to Correct (RTC) by 30 September 2018 - or suffer draconian penalties

This refers to the need to remedy offshore tax non-compliance involving a liability for income tax, capital gains tax or inheritance tax, committed before 6 April 2017. For RTC to apply, HMRC should have been able to make an assessment to recover the income tax or capital gains tax in question on 6 April 2017 or make a determination to recover the inheritance tax on 17 November 2017.

Offshore tax non-compliance occurs if the unpaid tax is charged on or by reference to:

  • income arising from a source in a territory outside the UK;
  • assets situated or held in a territory outside the UK;
  • activities carried on wholly or mainly in a territory outside the UK;
  • income (or sale proceeds in the case of a capital gain) that arose in the UK but was either received or transferred abroad before 6 April 2017; or
  • a disposition that gives rise to transfer of value for inheritance tax  involving assets that are transferred outside the UK before 6 April 2017.

Penalties for failure to correct

If the non-compliance is not corrected by 30 September 2018, the following penalties may be imposed.

  1. The standard RTC penalty of 200% of the tax attributable to the offshore non-compliance. This can be reduced by disclosing anything that is relevant to the non-compliance or its correction, but the minimum penalty is 100% of the tax involved, unless HMRC think that there are special circumstances that justify a further reduction. No examples of acceptable special circumstances are given, merely that they do not include inability to pay or the fact that a potential loss of revenue from one taxpayer is balanced by a potential overpayment by another.
  2. The Asset Based Penalty - Where the tax involved exceeds £25,000 in any tax year, a penalty of up to 10% of the value of assets connected to the failure will be charged, in addition to the RTC standard penalty.
  3. The Offshore Asset Moves Penalty - Where it can be shown that assets were moved to avoid having details reported to HMRC under international agreements on exchange of information, a penalty equal to 50% of the RTC standard penalty in addition to the standard penalty.
  4. Publishing names - In addition to the penalties detailed above, if more than £25,000 tax per investigation is involved, HMRC may publish the taxpayer’s name and address.

Full details on how these sanctions will be applied are to be published before 30 September 2018.

Reasonable excuse

These penalties will be chargeable if the taxpayer fails to correct by 30 September 2018, unless he can demonstrate a ‘reasonable excuse’ for not doing so. If he can, there will be no RTC penalty, but the tax will be payable, with interest. And the taxpayer may still receive a penalty under the existing rules for the non-compliance.

Extension of period for assessment of offshore tax

The RTC legislation allows HMRC a longer period in which to take action to recover any tax that is subject to the RTC. Thus, HMRC will continue to be able to assess any offshore tax until 5 April 2021 that they could have assessed on 6 April 2017, if later, the date on which an assessment can be raised using the normal rules.

Specific advice should be obtained before taking action, or refraining from taking action, on any of the subjects covered above.  If you would like advice or further information, please speak to your usual Shipleys contact.

Need more help? Please contact us at advice@shipleys.com or +44 (0)20 7312 0000