As the deadline to declare tax due on offshore assets to HMRC fast approaches, we look once again at the 'Requirement to Correct' legislation and the alternative option after the 30th September 2018, 'Failure to Correct'.
"Requirement to Correct" (RTC)
HMRC have given UK tax payers a window to disclose any previously undeclared offshore incomes and gains.
The deadline to make a declaration to HMRC is 30th September 2018, after which date the Failure to Correct regime takes over.
Now is the time to bring your affairs up to date without risking higher penalties (see below).
"Failure to Correct" (FTC)
From 1st October 2018, the Failure to Correct regime replaces the Requirement to Correct. Under the FTC, the penalties for failing to correct historic errors under the RTC start at 200%.
HMRC also have the power to levy 10% asset-based penalties and ‘name and shame’ persons associated with structures. This much harsher line shows HMRC are now taking a very unforgiving approach towards non-compliance.
1. I am not sure whether I need to make a declaration?
Individuals, companies and trusts are all affected by the RTC measure and Income tax, CGT and IHT are included.
All tax due on offshore assets from before 6th April 2017 (including foreign property; investment income; or moving money into the UK from elsewhere) should be declared. Offshore includes the Channel Islands and Isle of Man.
2. What are my options?
If you decide between now and 30th September that you have not declared offshore assets to HMRC, you have two choices:
1. Make an unprompted declaration before 30th September 2018 = reduced penalties
2. Wait until disclosure is prompted by HMRC after 30th September 2018 = face higher penalties
3. What is the process of making a declaration before the RTC deadline?
Step one is to notify HMRC that you intend to make a declaration, this must be done before 30th September 2018. You can contact HMRC using their digital declaration service or inform the tax office by speaking to an HMRC officer.
Step two is to make a full disclosure and pay tax owed within a 90-day period.
If you would like more clarity around either RTC or FTC, you can contact our Tax Manager, Hannah Roynon-Jones who will answer your questions.