Posted on 27 July 2018
Simon Littlejohns, Head of Tax at Friend Partnership Limited, explains the steps taxpayers with foreign financial interests must take to comply with HMRC’s Requirement to Correct regulations by 30 September 2018.
The deadline for HMRC’s Requirement to Correct legislation is fast approaching and requires taxpayers to notify HMRC of any past failure to declare and pay tax in the UK on any taxable offshore income or gains that arose prior to 6 April 2017.
What is the Requirement to Correct?
The legislation is a step change in HMRC’s approach to offshore tax evasion.
The new rules sit alongside the introduction of the Common Reporting Standard and other global transparency measures, which mean that more than 100 overseas jurisdictions will be sharing financial information with HMRC in respect of UK resident taxpayers with offshore financial interests.
The information shared will be in connection with overseas bank accounts, insurance products and other investments.
HMRC will, of course, be passing on information to overseas jurisdictions in connection with foreign nationals with financial interests in the UK.
What are the penalties for failing to correct?
It is important to review your offshore affairs as failure to notify will result in you becoming liable to a ‘Failure to Correct’ penalty, which is likely to be significantly higher than it is now and could be in excess of 100% of the tax found to be due.
The new rules allow no room for error as HMRC say they will make no distinction between a deliberate act of evasion and a genuine mistake.
What do taxpayers need to do now?
If you have any offshore financial affairs – this includes, for example, rent from an overseas holiday home – then you must take action now to ensure that your past tax returns were correct. If not, you are required to supply HMRC with details of the failure, all relevant information and your calculation of the tax, interest and penalties due. This must be done within 90 days of your notification.
Making a disclosure of an error now could result in a reduced penalty and prevent any reputational damage caused by a HMRC investigation. You can make a correction before the deadline using HMRC’s digital disclosure service.