OFFSHORE TAX / FAILURE TO CORRECT

The Requirement to Correct (RTC) legislation was HMRC’s last attempt to encourage taxpayers with links to offshore assets and investments to review and regularise their historic UK tax affairs (if appropriate). Putting a new/additional responsibility on taxpayers to ensure they are compliant.

The new legislation dictates that any entity in the world has an obligation to identify and disclose historic non-disclosure relating to UK Income Tax, Capital Gains Tax and Inheritance Tax.

Over the last decade there have been many favourable amnesties available to facilitate the disclosure of any historical income and gains linked to offshore assets and investments. HMRC are, therefore, taking a much stronger stance against any taxpayers who, in their eyes, opted not to disclose voluntarily despite several prompts and opportunities published in the media and by tax professionals.

With the introduction of the Common Reporting Standard and various Beneficial Ownership Registers, HMRC’s ability to access third party information in other jurisdictions has increased significantly. These new data sources are enabling HMRC to more easily identify individuals who have not ensured that their tax affairs are up to date.

HMRC have repeatedly made it clear that they will not hesitate to prosecute individuals where appropriate. Given the complexity of the UK tax legislation, it is therefore vital that any person with any arrangement, which has a UK connection, undertake a review of their tax affairs.

What are the potential issues?
The RTC legislation was introduced to catch individuals who may have taken structuring advice regarding their affairs but where, the implementation or operation have not been perfect.

The issues which could be caught include (but are not limited to):

  • Overseas investment income, including simple interest,
  • Remittances to the UK
  • Constructive remittances (i.e. benefiting from the overseas monies in the UK, even if funds were not physically transferred – e.g. settling a UK debt, paying for a UK service or moving artwork to your UK home)
  • Tainting of “capital” accounts
  • Failure to pay the Remittance Basis Charge (RBC)
  • Trust structures
  • Overseas property rentals and/or disposals
  • Transfer of Assets Abroad

Failure to Correct (FTC) is the corresponding offshore penalty regime that applies from 1 October 2018, following on from the Requirement to Correct (RTC) legislation.

Any entity that did not ensure their historic UK tax affairs were regularised by 30 September 2018 will be subject to the new FTC provisions. These are draconian, potentially out of proportion to the tax due and will mean:

  • Penalties of up to 300% of the potential lost revenue (typically the additional taxes payable), The new standard minimum is 100%/
  • A potential 10% asset-value based penalty too, and
  • Potential “naming and shaming”, whereby your name, address and details of tax underpaid are published by HMRC. This can be accessed by anyone online, and is now far easier for HMRC to trigger.

Furthermore, HMRC have made it clear that they will not hesitate to prosecute individuals where appropriate, especially with them needing to meet targets.

Clearly, the legislation was and is designed to panic taxpayers into regularising their affairs if they have not already. The good news is that by making a voluntary disclosure you can achieve the new minimum penalty, otherwise it cannot be less than 150% (e.g. if you wait for HMRC to write to you), and you have a significantly better chance of avoiding the other new sanctions.

Given the complexity of the UK tax legislation, we would strongly suggest that any person with any arrangement which has a UK connection undertake a review of their tax affairs to ensure that they are compliant with historic and current UK tax legislation (both in spirit and in fact) as soon as possible.

HOW CAN LANCASTER KNOX HELP?

At Lancaster Knox our Tax Investigation specialists are industry recognised and have dealt with hundreds of potentially contentious situations with HMRC over the years.  We are adept at managing interactions with the tax authorities to ensure that the process runs smoothly and that your interests are best protected.

Lancaster Knox will work with you (and your current adviser, if applicable) to undertake a review of your affairs, arrange a UK tax disclosure if necessary and ensure that HMRC do not seek to obtain information they are not entitled to.

If HMRC have already opened an enquiry or commenced an investigation into your affairs, either under COP8 or COP9, then please do get in contact as soon as possible so that we can ensure that the process is managed correctly and in a timely manner from the get-go, that HMRC receive the correct amount of tax and that your interests are fully protected.

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