UK taxpayers with offshore holdings could soon be subject to new legal obligations under the Requirement to Correct proposals, with significant sanctions if they fail to comply.
HMRC has also launched the Worldwide Disclosure Facility to enable taxpayers to correct past irregularities in advance of the new sanctions being introduced.
The main headlines are:
Requirement to Correct (RTC)
- HMRC announced a new consultation at the end of August 2016 which proposes a Requirement to Correct (RTC).
- Any person with UK tax irregularities related to offshore interests has a legal obligation to correct those and settle those liabilities.
- It is envisaged that RTC will encourage taxpayers to review their affairs and take advice as appropriate to ensure their offshore interests are tax compliant and if not, to correct them.
- The correction must be made on or before 30 September 2018.
- By 30 September 2018 HMRC will be receiving CRS data (from circa 100 countries) which will allow it to identify and pursue those who have not come forward to regularise their affairs.
- Any person who is found to have failed to have corrected their affairs will be subject to a new set of sanctions.
- Under one proposal this would include penalties in the range of a minimum of 100% up to 200%, and in addition, a 10% asset based penalty and “naming and shaming” of those who fail to correct.
Worldwide Disclosure Facility (WDF)
- Opened 5 September 2016. Current terms run until 30 September 2018.
- Anyone who wants to disclose UK tax liabilities that relate wholly or partly to an offshore issue can use the facility. That is, income arising outside the UK, assets situated or held outside the UK, activities carried on wholly or mainly outside the UK or funds connected to a UK liability transferred outside the UK.
- There will be no immunity from prosecution (need to consider Contractual Disclosure Facility on case by case basis, eg second offenders).
- It is a two stage process using HMRC’s Digital Disclosure Service portal:
- Within 90 days of date notification confirmed it is necessary to:
a. complete disclosure; and
b. pay tax, interest and penalties.
- There is a requirement to self-assess behaviour to determine years to include in disclosure and level of penalties.
- In exceptional circumstances clarification can be sought from HMRC before submitting the disclosure using the non-statutory clearance process.
- There is a requirement to disclose the maximum value of overseas assets at any point in the last 5 years.
- Onshore liabilities should also be disclosed if the WDF is being used.
- HMRC must acknowledge the disclosure within 15 days and advise course of action within 40 days of this.
- HMRC will check all disclosures and investigate if necessary.
In addition to the WDF there are other disclosure routes and anyone contemplating a disclosure will need to consider the most appropriate route to take. We have extensive experience advising those with a requirement to disclose issues to HMRC.
Please contact us if you would like to discuss the above in more detail.