HMRC plan to extend the assessing time limits for offshore tax non-compliance to 12 years, which is as much as tripling the current limit
Currently HMRC have four, six or 20 years (for mistake, careless or deliberate behavior respectively) to assess tax that is due. There will be a consultation in spring 2018 proposing to extend the four and six year time limits such that HMRC will always be able to assess at least 12 years of back taxes for offshore non-compliance. The four, six and 20 year time limits will continue for onshore non-compliance so for the first time there is divergence on periods taxable between onshore and offshore.
The new measure announced today should also be considered in conjunction with Requirement to Correct (RTC), the Legislation for which was introduced on 16 November 2017. RTC places a new legal obligation for those impacted to correct any offshore non-compliance giving rise to a UK tax liability.
RTC requires taxpayers who have outstanding offshore tax non-compliance as at 5 April 2017, and which was committed on or before 5 April 2017, to correct the position on or before 30 September 2018. Where tax liabilities that have not been corrected by this date, and are subsequently established, penalties for Failure to Correct (FTC) will bite. It is the FTC which is penalised, not the original behaviour which led to the tax liability. Consequently FTC penalties could apply to even those who took reasonable care as well as those liabilities due to careless or deliberate behaviour.
Penalties will start at 200 percent of the tax liability (can be reduced but no lower than 100 percent). The only defence to FTC is that someone had a reasonable excuse why they did not correct before 30 September 2018. The provisions in the legislation specifically disqualifies tax advice received in certain situations. The significance of the new measure announced in the Budget for those who fail to take the corrective action required under RTC is that in addition to the significant penalties that apply, even more years will now be subject to tax and in turn those extra years will also be subject to the 100-200 percent penalties.
In addition HMRC are to publish their consultation response on the proposed requirement to notify HMRC of offshore structures.