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HMRC internal manual

Compliance Handbook

Offshore matters: requirement to correct certain offshore tax non-compliance: overview - Schedule 18 Finance Act (No 2) 2017

Background

This guidance covers penalties under Schedule 18 FA (No 2) 2017 known as the ‘Requirement to Correct’ (RTC) certain offshore tax non-compliance.

The RTC legislation has been introduced as part of the Government’s strategy against offshore tax evasion and non-compliance. This builds on from previous measures in 2012 introducing offshore penalties for persons who deliberately withhold information relating to a tax liability which arises from activities, income and assets held in a territory outside the UK, see CH111100.

What is the requirement to correct?

Schedule 18 of FA 2017 creates an obligation for anyone who has undeclared UK tax liabilities relating to Income Tax, Capital Gains Tax or Inheritance Tax that involve an offshore matter or transfer to disclose them to HMRC on or before 30 September 2018.

The legislation refers to these undeclared liabilities as ‘relevant offshore tax non-compliance’, see CH123100.

If the person ‘P’ corrects their position by this date, then the tax and interest will still be collected, however any penalty that is charged will be under the relevant penalty legislation, for example where there is an inaccuracy the penalty will be charged under Schedule 24 FA 2007.

This legislation potentially affects anyone who owns or has an interest in assets held offshore, has had a source of income that is offshore, or has moved income or the proceeds of capital gains offshore.

Failure to correct

Failure to disclose the relevant information to HMRC on or before 30 September 2018 will result in the person becoming liable to a new higher penalty as a result of their failure to correct (FTC).

The new FTC penalty starts at 200% of the tax liability which should have been disclosed to HMRC under the RTC, but was not disclosed. This penalty can be reduced see, CH123400, but cannot be lower than 100% unless there are special circumstances, see CH123350.

In addition to the new higher FTC penalties; a person may also be liable to

  • an asset based penalty up to 10% of the value of the relevant asset where the tax underpaid is more than £25,000 in any year, see CH122020
  • an offshore asset move penalty equivalent to 50% of the standard penalty is due if the assets of funds have been moved in an attempt to prevent or delay HMRC discovering the loss of tax, see CH119000.

As well as these higher penalties, the person will still have to pay the underpaid tax and any late payment interest.

Publishing details of defaulters

HMRC are able to publish information about a person if they had offshore tax non-compliance at the end of the tax year 2016-17 which they were aware of and failed to correct within the requirement to correct period (6 April 2017 to 30 September 2018), and

  • they have incurred one or more FTC penalties to which they have been assessed or are the subject of a contract settlement, and
  • the offshore potential lost revenue (PLR) in relation to the penalties, or the aggregate of the offshore potential lost revenue in relation to each of the penalties, exceeds £25,000.

HMRC can also publish information if the person has been found to have incurred 5 or more FTC penalties regardless of the PLR. For further details, see CH123425.

The RTC deadline and the introduction of the tougher FTC penalties coincide with the introduction of data exchange on financial accounts for more than 100 countries under a common reporting standard (CRS). HMRC will be actively using the CRS data to pursue those who do not come forward.

CRS data will significantly enhance our ability to detect offshore non-compliance and it is in person’s interests to correct any non-compliance before that data is received.

Schedule 18 Finance Act (No 2) 2017