Draft Finance Bill 2017: ‘Requirement to Correct’ | KPMG | UK
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Draft Finance Bill 2017: ‘Requirement to Correct’; offshore tax evasion and non-compliance.

Draft Finance Bill 2017: ‘Requirement to Correct’

A new ‘Requirement to Correct’ (RTC) historic offshore tax evasion and non-compliance with much tougher new penalties for those who do not comply.


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Who should read this? 

The RTC and the associated new ‘Failure to Correct’ (FTC) penalties potentially apply to anyone with historic UK tax liabilities unpaid relating to overseas assets, for example, UK resident and domiciled individuals, UK resident non-UK domiciled individuals and offshore trustees. It applies equally to those who have deliberately evaded tax and those who have failed to pay the correct amount of tax through a careless error.

Summary of proposal 

The Draft Finance Bill 2017 includes a new ‘Requirement to Correct’ (RTC) historic offshore tax evasion and non-compliance. It introduces a new obligation for taxpayers to ensure that undeclared UK tax liabilities in respect of offshore interests relating to all periods up to and including 5 April 2017 are fully disclosed to HMRC before 30 September 2018. Liabilities in respect of income tax, capital gains tax and inheritance tax are within the scope of RTC.

The end date of 30 September 2018 corresponds with the date by which all countries committed to the OECD’s Common Reporting Standard (CRS) will be exchanging data with HMRC.

Taxpayers who fail to correct historic errors in the ‘RTC period’ (6 April 2017 to 30 September 2018) face much tougher new penalties for their ‘Failure to Correct’ (FTC). FTC penalties include;• A standard penalty of between 100% and 200% of the tax that has not been corrected;

• A 10% asset-based penalty (relevant to ‘the most serious cases’ where tax underpaid in a tax year is greater than £25,000); 

• An enhanced penalty of 50% of the standard penalty amount if HMRC could show that assets or funds had been moved to attempt to avoid RTC; and

• Naming and shaming of taxpayers ‘in the most serious cases’ (total loss of tax greater than £25,000). 

These new penalties are far harsher than any chargeable under present legislation.

The only defence for those who fail to correct liabilities in the RTC period is a ‘reasonable excuse’ for not meeting the obligation. The scope of ‘reasonable excuse’ will be based on existing provisions in law, and the draft legislation seeks to clarify in which circumstances taxpayers can and cannot rely on tax advice they have received as a reasonable excuse for not having corrected their tax affairs during the RTC period.

The method that taxpayers will use to make corrections will depend on their circumstances. For example, corrections can be made by submitting outstanding tax returns, by delivering information to HMRC through an enquiry or another method agreed with an officer of HMRC, or by using an existing method for disclosure (for example the Worldwide Disclosure Facility (WDF) or the Contractual Disclosure Facility (CDF) which might be more appropriate for more serious cases). 

In order to prevent tax falling out of assessment during the correction period, and to give HMRC a reasonable period to take action after the end of that period, RTC introduces extensions to existing assessment periods. This will mean that any tax that is potentially assessable at 6 April 2017 will remain assessable until at least 5 April 2021.

Key Changes since previous proposals

The provisions of the Draft Finance Bill 2017 contain a number of key changes from the consultation document released in August 2016. The key changes are;

• The consultation document included a proposal to compel taxpayers who corrected errors under RTC to provide information on third parties who had enabled or facilitated their offshore non-compliance. This measure has not been included at the draft legislation stage; and

• The consultation also included a proposal to extend the new civil enabler penalties to include enablers who help taxpayers avoid RTC. This has not been included in the draft legislation. 


The ‘RTC period’ runs from 6 April 2017 to 30 September 2018. Taxpayers are required to correct all offshore tax non-compliance issues that exist for all periods up to and including 5 April 2017, and taxpayers will have until 30 September 2018 to make any correction required. 

Our view

These measures are further evidence of HMRC’s continued crackdown on offshore tax evasion and non-compliance. With penalties of a minimum of 100% (up to 200%) of the tax underpaid, plus a 10% asset based penalty and naming and shaming in the most serious cases, the sheer size of potential penalties signifies a step change in HMRC’s approach to dealing with those who fail to put historic non-compliance right. 

The key to the new FTC penalties is that they are not in respect of the behaviour that led to the original non-compliance, as with standard penalties, but instead they relate to the person’s failure to take steps to correct that non-compliance within the RTC period. Those who have historic tax liabilities to disclose resulting from careless errors (for example, because advice that was taken some time ago has fallen out of date) will be subject to the new FTC penalties in the same way as those who have deliberately evaded tax. It is therefore important that those with any doubt concerning UK tax issues linked to offshore assets should review their affairs as soon as possible.


Derek Scott

+44 (0)20 7311 2618


Michael Pape

+44 (0)20 7311 2173


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