The requirement to correct (RTC) legislation could apply to trustees (whether UK resident or non-resident), non-UK resident landlord companies and individuals. Those with undeclared offshore tax liabilities relating to income tax (IT), capital gains tax (CGT) or inheritance tax (IHT) that arose before 6 April 2017 must disclose these to HMRC by 30 September 2018 or face severe penalties.
There is an opportunity between now and 30 September to review past actions and reporting obligations. We can help trustees and others to identify the potential risks.
Offshore non-compliance - trustees
RTC covers tax non-compliance that involved an offshore matter or offshore transfer. This will include any unpaid tax relating to income, assets or activities involving territories outside the UK or transfers to territories outside the UK.
For trustees, risk areas include:
- IT on UK source income, including rental income;
- IHT ten yearly charges on UK assets;
- UK assets can include loans to a UK resident beneficiary, or loans to fund expenditure on UK residential property.
How to correct
Trustees with offshore tax liabilities that fall within the RTC rules should make a disclosure to HMRC by the deadline. We can help with this disclosure and guide you through the various disclosure routes available.
Where corrective action is taken on or before 30 September 2018, the tax, interest and penalties will be calculated under current rules. If not corrected, there are increased penalties for failure to correct (FTC) of up to 200% of the undeclared tax. The penalty can be reduced, but only to a minimum of 100%, to reflect quality of disclosure, level of cooperation and seriousness.
An ‘asset-based’ penalty and ‘offshore assets moves’ penalty can also apply alongside the FTC penalty. HMRC can also publish the taxpayer’s identity in more serious cases.
Extended time limits
HMRC has until 5 April 2021 to assess taxpayers for taxes due under RTC.
For example, if the taxpayer submitted incorrect returns for the last ten years and his behaviour was considered careless, he would need to make a correction under RTC for the years from 2011/12. If he does not do so, HMRC has until at least 5 April 2021 to raise assessments.
Reasonable excuse defence against penalty There is a reasonable excuse against a penalty if the taxpayer relied on advice. Importantly, this excludes advice given where any of the following applies:
- the advice was not addressed to the taxpayer, or took no account of individual circumstances;
- the person giving the advice did not have the appropriate expertise to do so; or
- the advice was given or arranged by an interested person, being a person who participated in relevant avoidance arrangements or who received consideration.
A relevant avoidance arrangement is any arrangement where it would be reasonable to assume that its main purpose, or one of its main purposes, was to obtain a tax advantage. This could even cover a wide range of standard tax planning, although if the arrangement was in accordance with established practice at the time and HMRC had indicated its acceptance of that practice, it is specifically not a relevant avoidance arrangement.
How can we help?
If there is any doubt about whether or not to make a RTC correction, a taxpayer can take further advice from a person with appropriate expertise who was not involved in facilitating the relevant avoidance arrangement. Where advice was not taken at the time, it should be obtained now.
We can review the facts and advice to support a reasonable excuse defence if HMRC takes a different view of the tax position in the future. We are experienced in dealing with disclosures to HMRC and enquiries from HMRC.
If you would like any further information please get in touch with your usual Smith & Williamson contact in the first instance.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.