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Requirement to Correct: the deadline looms for settling historic UK tax liabilities

Requirement to Correct

KPMG recently held its latest tax update on the Island to discuss HMRC’s “Requirement to Correct” and “Failure to Correct” initiative.

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KPMG recently held its latest tax update on the Island, with over 150 local clients, contacts and members of the business community attending a seminar at the Claremont Hotel to discuss HMRC’s “Requirement to Correct” and “Failure to Correct" initiative.

The seminar began with an address from Greg Jones of KPMG in the Isle of Man, who emphasised the strict Failure to Correct (“FTC”) penalties applying to taxpayers after 30 September 2018 where there is a failure to disclose offshore liabilities. Greg advised that taxpayers (and their advisors) should now, more than ever, be considering their historic position from a UK income tax, inheritance tax and capital gains tax perspective, to avoid such strict penalties.

Graham Davies, Senior Policy Adviser for HMRC, then addressed the audience. Graham set out the wider objective of HMRC’s ‘No Safe Havens’ strategy, noting that Requirement to Correct (“RTC”) is a large part of this focus. Graham outlined that HMRC’s approach to RTC provides a fair way to encourage taxpayers with offshore affairs to clear up historical issues as well as to drive offshore tax compliance.

Graham highlighted the significance of the penalties in the event that taxpayers fail to correct, highlighting that a penalty of 30% or 40% of the unpaid tax could be as high as 200% after 30 September 2018. Finally, Graham noted that in the event of ‘complex’ cases, where a 180-day disclosure period is granted, taxpayers should be looking to notify HMRC by 31 March 2018, or they will lose the full disclosure period.

Katie Kneale (Tax Manager at KPMG in the Isle of Man) went on to discuss common mistakes that KPMG in the Isle of Man has seen with respect to taxpayers and their offshore affairs – more often than not, disclosures are required as a result of simple errors. Examples ranged from non-UK trusts directly in receipt of UK source income, benefits provided to UK resident beneficiaries and the deductibility of interest for non-resident landlords. Katie touched on the disclosure process, noting that disclosures will, most commonly, be sent to HMRC via the Worldwide Disclosure Facility.

Head of Tax Investigations at KPMG in the UK, Derek Scott, then considered the practical aspects of RTC. Derek highlighted that, depending on the behaviour of the taxpayer, the periods required to be corrected will range from four to 20 years. Derek stressed the difference in penalties applicable to taxpayers if they do not take action before 30 September 2018. In the event that no action is taken prior to this date, the key factor in determining the extent of the penalty will be whether the taxpayer had a reasonable excuse. Derek concluded by setting out the actions that taxpayers, and their advisors, needing to be taking now, included assessing inherent risks associated with the taxpayer (and how these are managed) and undertaking a review of potential areas that HMRC could challenge.

Greg then opened the panel session with Graham, Katie and Derek being joined by David Bester, Group Head of Technical, Legal and Compliance for Trident Trust. Questions ranged from whether HMRC have seen an increase in disclosures since the legislation was brought in last year (and whether they are anticipating a further increase in disclosures in the approach to 30 September 2018), to what CSPs should be doing now in advance of the 30 September 2018 deadline.

The popularity of the event demonstrates that the changing global tax environment is on people’s minds, with an appetite for awareness of HMRC’s approach to offshore 

© 2018 KPMG LLC, an Isle of Man Limited Liability Company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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