HMRC ‘Requirement to Correct’ protective assessments

What is the Requirement to Correct?

The Requirement to Correct (RTC) regime was introduced to incentivise you to make a disclosure via the Worldwide Disclosure Facility (WDF) on or before 30 September 2018 deadline, whereby Failure to Correct (FTC) penalties would apply from 1 October 2018 if you failed to do so. The WDF is an HMRC digital service that allows you to disclose offshore non-compliance in relation to any overseas interests, including Income, Capitals Gains or Inheritance Tax. 

The RTC deadline was introduced because, from this date onwards, more than 100 countries agreed to exchange data on financial accounts under the Common Reporting Standards (CRS). If you had offshore affairs, the deadline allowed you to correct non-compliance voluntarily, unprompted by HMRC, before HMRC began acting on this new information.

So why is HMRC issuing protective assessments by 5 April 2021?

The RTC legislation allowed HMRC a longer period to take action to recover any tax that is subject to the RTC rule. HMRC has until 5 April 2021 to use extended time limits to target any offshore tax liability subject to the RTC. For example, if HMRC raises an offshore non-compliance assessment on or before 5 April 2021, based on a taxpayer’s perceived careless behaviour, it can assess back to the tax year 2011/12. 

From 6 April 2021, when the extended time limits have ended, HMRC can only raise an offshore non-compliance assessment based on a taxpayer’s perceived careless behaviour back to the tax year 2015/16. Therefore, once the 5 April 2021 deadline has passed, in a careless behaviour case, HMRC loses the opportunity to assess four tax years.

Will HMRC issue you a protective assessment? 

HMRC will issue a RTC protective assessment if your tax affairs meet one of the following four situations: 

• Where a disclosure has been made under the WDF and you remain engaged in the WDF process, but the case is yet to conclude by way of a contractual settlement.
• Where a disclosure has been made under the WDF and you no longer remain engaged in the WDF process, and the case has not concluded by way of a contractual settlement.
• Where HMRC has written to you following receipt of CRS data suspecting irregularities in your tax affairs, yet no disclosure has been forthcoming under the WDF.
• Where HMRC is yet to write to you following receipt of CRS data suspecting irregularities in your tax affairs.

HMRC admits it will be raising RTC protective assessments to protect its interests, and the issue of such assessments ahead of the deadline does not mean HMRC has taken a final position. There’s still scope to appeal the assessments and agree a tax position for the years appropriate to the RTC protective assessments. If an assessment is considered to be excessive, such as the amount being higher than what you believe is owed, it must be appealed within the statutory time limit for doing so, which is 30 days from the date of the assessment. If you or your business have been affected by COVID-19, HMRC will give you an extra three months to appeal any penalty dated February 2020 or later.

Should you receive a protective assessment from HMRC, we can assist you on how best to handle the situation and minimise your exposure.

What if you have not disclosed by 30 September 2018?

To ensure there was an incentive for taxpayers to correct any offshore non-compliance on or before 30 September 2018, there are increased penalties under FTC. FTC penalties are significantly higher than standard offshore penalties, but can be reduced by submitting an unprompted disclosure through the WDF - making it even more crucial to disclose irregularities as soon as you’re aware of them, and before HMRC nudges or prompts you to disclose.

The maximum penalty for a prompted disclosure under FTC is 200% of the unpaid tax. By submitting a full and accurate disclosure, an FTC penalty can be reduced to 150%. 

The minimum penalty for an unprompted disclosure under FTC is 100% of the unpaid tax, provided the disclosure is full and accurate.

Should you have any concerns over the accuracy of your tax affairs, you should consider appointing disclosure specialists. We have extensive experience in assisting clients who wish to disclose errors in their tax affairs to HMRC and helping reduce the extent of any potential enquiry, and mitigate any financial and non-financial penalties that could be applied.

Reasonable Excuse

FTC penalties will be charged unless you can show that you had a reasonable excuse for not disclosing irregularities by the 30 September 2018 deadline. To see the list of circumstances that will not constitute a reasonable excuse for not disclosing irregularities, click here.

With HMRC not providing clear guidance as to what a reasonable excuse is, identifying what constitutes a reasonable excuse can be difficult. Buzzacott can review your position and identify if you have a reasonable excuse for not disclosing to HMRC by the RTC deadline, helping to reduce any unnecessary penalties.

How we can help

Buzzacott’s award-winning Tax Investigations and Dispute Resolution team have the expertise and proven track record of assisting clients on offshore non-compliance matters. Should you choose to get specialist advice from Buzzacott, we will:

• Conduct a review of your tax affairs to identify any issues which need to be disclosed.
• If you have received an RTC protective assessment, we can determine if it’s excessive and if so, contest the assessment.
• If you need to make a disclosure of offshore non-compliance, we can register you for the WDF process, prepare and submit a WDF disclosure minimising your exposure to unnecessary tax, interest and penalties.
• Where appropriate, deliver a letter of representation to explain our position to HMRC to bring your disclosure to a swift conclusion.
• If needed, we will negotiate a time to pay arrangement that is affordable to your needs and personal circumstances.

Get help today

Call us today on +44 (0)20 7710 3389 or fill in the form below and a member of our team will be in touch. All communications are in the strictest confidence.