This new law requires individuals and trustees with undeclared tax liabilities related to offshore matters to disclose them to HMRC by 30 September 2018 or face much stiffer penalties.
What is RTC?
The requirement to correct (RTC) rules were brought into effect by F(no 2)A 2017, s 68 and Schedule 18. You need to tell your clients about RTC if you have any suspicion that they may have assets offshore or offshore income for which they haven’t fully declared their UK income tax, CGT or IHT liabilities.
“Offshore” in this context includes the Channel Islands, Isle of Man and Republic of Ireland. The RTC rules equally apply to non-resident landlords who let property in the UK but who haven’t declared that income in the UK. A non-domiciled individual may not have declared offshore assets or income, but if their non-dom status falls away a declaration of their offshore income or gains is required.
John Flood gave us a run-down of what the RTC provisions cover in Offshore tax avoidance: Need to act now.
Although there is a hard deadline of 30 September 2018 to make a declaration of tax liabilities involving an offshore matter or offshore transfer, there has been very little publicity about the RTC.
HMRC has just released a two page summary of RTC which is suitable to send to clients, but that leaflet hasn’t been published on gov.uk. The CIOT has kindly made the RTC leaflet freely available for download from their website.
You may wish to remind clients that HMRC now has a lot more information coming in from other countries under the common reporting standard (CRS) exchange of information system. By September 2018, more than 100 jurisdictions will be exchanging data with the UK under the CRS.
Guidance for agents
HMRC has published detailed guidance for tax agents on RTC, which runs to many pages. It also held a Talking Points webinar for tax agents on RTC, which is available to view and to download the slides. I recommend that you read through those slides, as they include some useful examples of how and when a reasonable excuse may apply.
When the taxpayer makes the declaration on or before 30 September 2018, the normal penalties and interest rates apply as per any late payment or late notification of UK tax. These penalties can be up to 100% of the tax due if the error was deliberate and concealed. The level of this penalty is based on the taxpayer’s behaviour, so it may be set at a lower level if the non-declaration was not deliberate (eg penalties for failure to notify).
However, if the taxpayer does not make the declaration tax relating to offshore matters before midnight on 30 September 2018, the penalty will be a flat 200% of the tax liability.
This penalty takes no account of the taxpayer’s behaviour, but it may be negotiated down to 100% of the tax due where the taxpayer is fully co-operative with the disclosure made to HMRC.
In addition, the taxpayer may be subject to the new asset-moves penalty (up to 50% of asset value) and/or the asset-based penalty (10% of asset value).
To give HMRC time to raise the necessary assessments regarding tax liabilities relating to offshore assets or income, the assessment deadlines have been extended to 5 April 2021. Exactly how far back HMRC can go to raise an assessment depends on whether the omission was deliberate, careless or was a mistake made in spite of due care being taken.
The RTC penalties are not applied if the taxpayer has a reasonable excuse. Where the taxpayer took tax advice from a qualified person and acted on that advice, they may have a reasonable excuse. However, this does not apply where the advice is deemed to be disqualified advice.
Advisers may have given disqualified advice if they didn’t have the appropriate expertise for giving it, failed to take account of the taxpayer’s relevant circumstances, didn’t give the advice directly to the taxpayer, or the advice related to tax avoidance arrangements.
If you have ever given advice related to offshore matters you may want to review your files and double-check your professional indemnity policy.
How to correct
The correction can be made in a number of ways, including:
- submitting or amending a tax return
- informing HMRC of the need to pay tax
- as part of a tax enquiry
- using the worldwide disclosure facility
About Rebecca Cave
Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.