Revisit anything 'offshore' or risk potentially huge penalties

The Finance (No. 2) Act 2017 introduced new rules for anyone who has undeclared UK Income Tax, Capital Gains Tax or Inheritance Tax that involve ‘offshore matters or transfers’ in the tax years prior to 6 April 2017 to correct the position with HMRC by 30 September 2018.

If you need to make a disclosure of ‘offshore’ items under the RTC you will also need to make full disclosure of any UK irregularities and pay the outstanding tax, interest and any penalty due. 

UK individuals are the primary target, but the RTC also catches non-UK resident individuals and companies that have sold UK residential property recently as well as offshore trusts and their settlors/beneficiaries.

The definition of ‘offshore matters or transfers’ is long but you are potentially affected if:  

a) you are in the UK and have an interest in anything outside the UK, including a trust or Civil Law equivalent; or

b) are outside the UK with an interest in UK residential property, have received UK income or perhaps work/trade for short periods in the UK. 

The RTC is limited to tax non-compliance committed before 6 April 2017 and if a relevant disclosure is not made in time, this will be a ‘Failure to Correct’ (FTC) and will expose you to far higher penalties that the usual regime (min 100% of the tax involved; max 200%). But even these could pale into insignificance compared with the additional ‘Assets Based Penalty’, which can be up to 10% of the value of the assets connected to the failure. You could also have an additional penalty, as well as having your details published by HMRC, if assets were previously moved from one jurisdiction to another. 

It is key to remember that the RTC only applies if HMRC is able to raise an assessment to recover the unpaid tax on 6 April 2017, which means, depending on the quality of the omission, that the disclosure may only have to go back to 2013/14 or as far back as 1997/98. It is likely that most cases will have to look back to 2011/12. It is worth noting that if you decide to delay disclosure hoping that the passage of time will cause at least some of the years to fall away, this may backfire because HMRC’s window has been extended to 2021 to pre-empt this strategy. 

If taxpayers are unsure whether they have undeclared UK tax liabilities that involve ‘offshore matters or transfers’, they should check their affairs as soon as possible. Usually, relying on advice from a qualified and experienced professional provides a defence of ‘reasonable excuse’. However, HMRC has specifically removed this in some circumstances. You need to be very careful when considering offshore activity that was entered into on the back of tax advice; you may need to get a second opinion which itself will provide a ‘reasonable excuse’ against any future penalties should HMRC successfully challenge the position. 

We can assist with either the review or a second opinion as well as making any unnecessary disclosure before the deadline to limit any penalties that may be due.

This article was taken from the Spring 2018 issue of the Private Client team's Quarterly Tax Digest. You can access all the other articles here.

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