September 30 2018 will not be just another day for taxpayers with undeclared offshore tax liabilities. Regardless of residential status, all UK resident, non-UK resident trustees or non-resident landlords, with such liabilities will have to make disclosures on or before the 30th of September 2018 to avoid stiff penalties. While there is a clamor for extension of the date, due to the relatively shorter period between announcement and deadline, there have been no indications of any action towards a postponement. It is therefore important for all entities who fall in the category, to speed up arrangements for disclosure within the fast approaching date. Here is all that you need to know about the FTC (Failure to Correct) and RTC (Requirement to Correct) legislation that could impact you.
The RTC (Requirement to Correct) is a legal requirement under relevant sections of the Finance Act, 2017 that applied to individuals/entities with undeclared UK tax liabilities arising out of offshore matters or transfers where liabilities arose before 6 April 2017.
The FTC (Failure to Correct) refers to the situation where individuals/entities have failed to make the corrections under the RTC Rule within the stipulated deadline of 30 September 2018, which will attract penalties.
What exactly constitutes offshore non-compliance?
Any tax owed to the HMRC from either an offshore matter or transfer, which has not been disclosed to the HMRC will be considered as offshore non-compliance. For the purpose of RTC all transactions carried out till the 06 April 2017 will be considered. Income earned in the UK and transferred abroad, income earned abroad or inherited abroad will fall into the two categories of offshore transfer and offshore matter. Of great importance is the fact that the provisions of the FTC and RTC will apply to anyone with tax liabilities and will not be targeted only at individuals attempting to avoid the payment of tax. A few examples tabulated below will help grasp the underlying definitions of offshore non-compliance.
|Typical scenarios/examples||Offshore matter||Offshore transfer|
| Income Tax|
If you have earned income from a business in the UK and have transferred the money abroad.
|The failure to disclose the transfer becomes an offshore transfer of non-compliance.|
| Income Tax|
If you have a bank account abroad from which you earn interest.
|The failure to disclose the earning of interest on bank deposits abroad becomes an offshore matter of non-compliance.|| |
| Income Tax|
If you have a business or a source of income abroad from which you regularly earn income.
|The failure to disclose income from an overseas business becomes an offshore matter of non-compliance.|
| Capital Gains Tax|
If you have earned a profit from a sale of property that you held abroad.
The failure to declare gains from a sale of property becomes an offshore matter of non-compliance.
| Inheritance Tax|
If you have inherited cash from a bequeathal in an overseas territory.
The failure to declare the inheritance of cash from an inheritance in an overseas territory becomes an offshore matter of non-compliance.
| Landlord Tax|
If you are a non-resident, but hold properties in the UK from which you rent.
|The failure to disclose the earnings in returns that are filed becomes an offshore transfer of non-compliance.|
Non compliance after the September 30 deadline will result in attracting penalties to the tune of 100%-200% of the tax that should have been paid. In other words, if you were non-compliant with the RTC rule within the stipulated deadline, you will pay double the tax that you would have originally paid, had you been deemed to be compliant. Additionally, the proposed sanction includes the slapping of a penalty up to one tenth of the value of the offshore asset that created the tax liability, if the tax at stake is £25,000 or more. The maximum theoretical FTC penalty can be 1300% of the tax due.
In addition to the penalties above, if the taxpayer deliberately failed to comply with the RTC requirements and owes more than £25,000 in tax, HMRC may also ‘name and shame’ the taxpayer by publishing their details online.
What needs to be done to disclose and make the correction before the deadline
The offshore tax non-compliance can be corrected through one of three methods permitted as of now, and this applies to any of the non-compliance aspects covered under the rule.
- The HMRC has launched a Worldwide Disclosure Facility, with a separate Digital Disclosure Service, which can be used for making the corrections.
- The corrections can be intimated to an officer of the HMRC during an enquiry
- Additional methods that may be announced or permitted by the HMRC
It is pertinent to note that the date has been chosen to coincide with the date when the Common Reporting Standard will be used by nations across the world to exchange financial data. This effectively means that the HMRC, like other nations that adopt the CRS, will have access to more data, and it is best to make the corrections before the HMRC detects non-compliance and slaps the proposed penalties.
How we can help
If you have straightforward tax affairs or have been well advised in the past, its likely you will need to take little or no action. However, where there is uncertainty or complexity then a second opinion is advisable.
Where liabilities are identified, there are a number of routes to certainty before the deadline. Our team can support you to bring your tax affairs up to date on the best available terms. For more information please call us on 02035002646 Or Book Free Consultation