Countdown on for undeclared tax on overseas interests

11 May 2018

calculator and paperwork
With the clock ticking on HM Revenue & Customs’ (HMRC’s) deadline on the new Requirement to Correct (RTC), the crackdown on offshore tax evasion and non-compliance continues to intensify.

The RTC is a legal requirement which creates an obligation for anyone with certain undeclared UK tax liabilities relating to offshore matters to correct their tax position by 30 September 2018. The tax liabilities in question are income tax, capital gains tax and inheritance tax accrued before 6th April 2017.

James Hender, a partner and head of Saffery Champness’ Private Wealth Group warns the unwitting targets they could face penalties up to 200% of their tax liabilities:

On HMRC’s expanding reach:

“It could be the layman who has simply forgotten to report that will suffer the most, rather than serial tax avoiders.

“To date, HMRC has been adopting the carrot approach to coax recalcitrant taxpayers to comply with the tax rules. However, from October this year, HMRC will be wielding the stick, and its stick is now big.

“Many non-compliant taxpayers have come forward over recent years and have been charged lower penalties as a result. With HMRC increasingly in possession of information from offshore jurisdictions, the game is changing fast and the era of low penalties is ending. Financial information is now being shared between multiple tax authorities across the globe under the Common Reporting Standards, and all types of offshore investment income will be reported to the taxpayer’s home territory. This includes details of bank interest, annuities, as well as of account balances and proceeds from the sale of financial assets.”

“To ensure that taxpayers come forward, taxpayers now have a legal requirement to correct their tax liabilities on offshore matters before the stick gets wielded.

“30 September is the date all jurisdictions signed up to share taxpayer’s information will exchange the information. After this the Requirement to Correct is replaced by a much more ominous Failure to Correct (FTC). 

“Where any liabilities have not been addressed by 30 September, the penalties can start at 200% of the amount owed. Although they may be reduced, they will not go any lower than 100%. This will combine with HMRC’s serious tax defaulters name and shame list which, hosted on a public website, poses a huge reputational risk.”

Who might suffer?

“It’s not a time for anyone to be resting on their laurels; the new rules are certainly not just the concern of the super-rich or corporates. 

“For example, someone with a holiday home in the Dordogne who hasn’t declared rental income on it in previous years, for example £10,000 of unpaid tax, could be liable for a fine of up to £20,000 in addition to the tax. This could hit many people who perhaps have a niggle at the back of their minds that they may have forgotten something a few years ago on overseas interests. 

“Our experience in these matters is that HMRC’s starting point is often to believe the worst, and it can be difficult to persuade them an error is innocent. Incorrect conclusions can be reached by HMRC when wires are crossed and, with the potentially huge penalties, this is a matter that cannot be swept under the carpet. Despite this, if the taxpayer comes forward by way of voluntary disclosure with plenty of evidence to demonstrate the mistake is genuine, HMRC are likely to be a little more forgiving in their conclusions.”