HM Revenue & Customs (HMRC) is clearly serious about tackling undeclared tax in relation to an individual’s foreign interests.
If further evidence were needed, then the requirement to correct (RTC) tax due on offshore assets is a persuasive example.
RTC legislation requires individuals to settle undeclared UK income, capital gains and inheritance tax liabilities by 30 September. HMRC has published an extensive list of the kinds of foreign income and gains that will give rise to UK tax, though it's pointed out that this list is not exhaustive.
Ahead of the deadline, taxpayers with foreign aspects to their financial affairs should review their position to decide if they need to make a disclosure under the RTC. Taxpayers with particularly complex financial arrangements may wish to seek professional advice on the new rule.
It’s important to highlight that many individuals have a foreign component to their financial affairs. There's nothing unusual or necessarily complex about this, with the vast majority disclosing and paying HMRC the tax due, usually via their tax return.
However, the wide scope of the RTC legislation enables its net to be cast wide and may catch some unaware, resulting in innocent non-compliance rather than deliberate action. Offshore non-compliance can range from failing to complete a UK tax return, submitting one with errors, failing to notify a return should be issued and failure to notifying chargeability to UK tax.
Anyone who has failed to notify chargeability involving offshore matters or transfers for any year up to and including the 2015/16 tax year is required to correct by 30 September 2018. HMRC can go back a considerable length of time into a person’s tax affairs depending on the reason for having outstanding tax. Deliberate behaviour can warrant 20 years from the end of the tax year in which the tax loss arises.
A correction under the RTC rule can be achieved in a variety of ways, including via HMRC’s digital disclosure service, telling an HMRC officer in the course of an enquiry into an individual's affairs or any other method agreed with HMRC.
Whatever the route taken, the crucial point is contacting and supplying all relevant information by 30 September to enable HMRC to calculate the tax due.
As another incentive to meet the deadline, there can be punitive penalties for those who fail to do all they are required to do by 30 September. These penalties include a standard penalty which, depending on the co-operation and the quality of the disclosure, will result in a minimum of 100 per cent of the tax involved. This is in addition to any tax and interest due.
Further penalties may also apply. These will be incurred if an individual fails to correct unless they can demonstrate they had a ‘reasonable excuse’ for not doing so.
Having taken advice will not in all cases be a reasonable excuse – it depends on the circumstances.
The reasonable excuse defence cannot be relied on where the person giving the advice had an interest in the arrangements which led to the non-compliance. Nor can it be relied on where the adviser lacked the appropriate expertise, or the advice did not take into account all relevant circumstances.
HMRC will accept that anyone who is a member of a UK recognised legal, accountancy or tax advisory body will have the appropriate expertise to give advice on UK tax matters. There will only be grounds for reasonable excuse if the adviser was given full and accurate details of all relevant matters.
With the deadline fast approaching, now is a good time for financial planners and other professional advisers to remind clients of their obligations under the RTC.
Where there is any doubt, clients should seek appropriate advice to help them decide if they need to comply with the RTC by the end of this month.
Non-compliance – be it accidental, careless or deliberate – is fair game under the RTC. It should be remembered that where professional advice has been sought in relation to foreign matters, the specific circumstances of that advice may or may not be sufficient to avoid the steep penalties HMRC can apply if the 30 September deadline hasn't been met.