What is Requirement to Correct?
The ‘Requirement to Correct’ (RTC) is a new piece of legislation that was designed to compel taxpayers to review their offshore interests and correct any UK tax irregularities by 30th September 2018.
After this date, the ‘Failure to Correct’ (FTC) regime came into force, which sees taxpayers (including non-UK resident trustees and non-resident landlords) that have failed to correct (FTC) subject to a range of significant penalties.
It is of significance that HMRC have increased timeframes for assessing taxpayers’ tax liabilities under the RTC. If it were the case that an assessment time limit would expire in the period between 6th April 2017 and 5th April 2021, the relevant time limit is extended to finish on 5th April 2021.
The expanded enquiry window, coupled with the increased information that HMRC will receive under the ‘Common Reporting Standard’ (CRS) and their continued focus on offshore compliance, will increase the likelihood of an enquiry for some individual taxpayers.
Penalties:
Where a taxpayer fails to correct an error within the statutory window, the new regime imposes the following penalties:
- A penalty of between 100% and 200% of the tax. The penalty will apply regardless of the reason for the error.
- Potential asset based penalty of up to 10% of the value of the relevant asset where the tax at stake is over £25,000 in any tax year
- Potential “naming and shaming” where over £25,000 of tax per investigation is involved
- A potential additional penalty of 50% of the amount of the standard penalty, if HMRC can show that assets or funds had been moved to attempt to avoid the RTC
The RTC and FTC applies to any tax error arising from offshore financial interests – it is not limited to those who have deliberately failed to pay the right amount of tax. The regime applies to anyone who has UK tax liabilities, which would include non-UK resident trustees and non-resident landlords.
If an error is discovered it should be disclosed to HMRC. There is no prescribed route for disclosures under the RTC regime and the method of disclosure will depend upon the circumstances in each case. Taxpayers and their advisors should seek advice from a tax dispute specialist.
Action points:
We have to date:
- Written to all our clients and encouraged anyone with offshore interests to review their affairs to ensure they have been, and will continue to be, fully tax compliant
- Reviewed our own records and engaged with clients who we believe may have a liability in respect of RTC
- Wherever errors are identified we will work with clients and a disclosure will be made to HMRC as soon as possible
If you believe the RTC or FTC will impact you or any of your clients, please do not hesitate to contact us for further information.