Article:

The UK’s Requirement to Correct

17 November 2017

What is the Requirement to Correct?

As a result of tax transparency (the Common Reporting Standard / beneficial ownership registers) HMRC is more likely than ever to ‘spot’ non-compliance – be it as a result of genuine mistakes, carelessness or deliberate action. 

The Requirement to Correct (‘RTC’) is a statutory obligation for taxpayers with overseas assets to correct any issues with their historic UK tax position.  Those who fail to do so face punitive financial penalties and other severe sanctions.

The RTC applies to any person with a potential undeclared UK income tax, capital gains tax and/or inheritance tax liability, i.e. individuals, partnerships, trustees or non-resident landlord companies.
 

What is the deadline?

The RTC period started on 6 April 2017.  Taxpayers must correct their UK tax position by 30 September 2018.
 

What does HMRC want taxpayers to do now?

HMRC wants all taxpayers who have or who had any offshore financial connections (including those who consider themselves to be non-UK domiciled and/or non-UK resident) to review their UK tax affairs to ensure that all tax returns are correct. Additionally, taxpayers should ensure they submitted tax returns for all years for which they owed tax on income or gains.
This includes checking implementation of planning and technical opinions (e.g. that someone is non-UK domiciled are correct) and whether advice taken in the past was refreshed when the law or the client’s circumstances changed. Offshore structures, anti-avoidance legislation and remittances should also be reviewed.

Those who identify errors or failures to submit/notify in the past must rectify the situation before 30 September 2018.  Some may decide to submit disclosures where there is doubt over a technical position in order to protect their position against failure to correct sanctions in case HMRC later decides that additional tax is due. 
 

What happens if an error is not corrected by 30 September 2018?

After this date, the ‘Failure to Correct’ (‘FTC’) regime will start, with punitive penalties, including:

  • a tax geared penalty of between 100% and 200% of the tax not corrected 
  • a potential asset based penalty of up to 10% of the value of the relevant asset where the tax at stake is over £25,000 in any tax year
  • potential “naming and shaming” where over £25,000 of tax per investigation is involved
  • a potential additional penalty of 50% of the amount of the standard penalty, if HMRC could show that assets or funds had been moved to attempt to avoid the RTC

Anyone who fails to correct their position despite knowing that they should do so may also face

  • a potential asset based penalty of up to 10% of the value of the relevant asset where the tax at stake is over £25,000 in any tax year
  • potential “naming and shaming” where over £25,000 of tax per investigation is involved

No penalty will be chargeable where the taxpayer has a reasonable excuse for failing to correct the position.  A ‘health check’ of a taxpayer’s position during the RTC period is likely to provide a strong, defence.
 

How can BDO help?

We are already assisting clients with Tax Health Checks, reviewing both their historic position and, where appropriate, approaching HMRC with a disclosure.
 

Members of BDO’s tax dispute resolution team have written a number of articles and guidance on the RTC.

  • You can read our full guidance on the Requirement to Correct below.

    Download
     
  • Partner Dawn Register has written a comprehensive article focusing on the UK’s Requirement to Correct, published in the Bloomberg BNA Tax Planning International Review journal.

    Dawn explains what the RTC is and how it will affect taxpayers. Penalties for non-compliance will increase significantly, even where there is no deliberate intent behind the mistake made. 

    There is still a window of opportunity for taxpayers and their advisers to review their position and ensure any mistakes or errors are corrected. Voluntary disclosures should always be made sooner rather than later.

    Download the full article below or read online at www.bna.com

    Download
     
  • Helen Adams, Principal within the team, and Dawn Register wrote an article on Requirement to Correct in the September 2017 issue of Tax Advisor magazine.  Download the full article below.

           Download

All articles reproduced with kind permission from the original publishers.