There are now just days until HMRC’s Requirement to Correct (RTC) period ends and the Failure to Correct (FTC) fines become enforceable.
Those with any historic non-compliance discovered by HMRC after 30 September – including via information received under the Common Reporting Standard (CRS) – will face paying not only the tax due and interest on the late payment, but also penalties at levels unprecedented in the UK.
Those with undeclared overseas assets could face penalties up to 200 percent of their tax liabilities, and in serious cases where the tax involved is more than £25,000 (in a given tax year) a further penalty of up to 10 percent of the value of the asset.
The RTC (and FTC) applies to all taxpayers with any offshore interest – including property, trusts or bank accounts – where there is undisclosed income tax, capital gains tax or inheritance tax liabilities.
James Hender, head of private wealth, and Lucy Brennan, a partner, at accountancy firm Saffery Champness, are warning those who may be worrying about any undeclared overseas tax liabilities.
Mr Hender said: “To date HMRC have been coaxing taxpayers into coming forward by charging lower penalties for non-compliance than if HMRC had discovered it themselves. With more information from offshore jurisdictions through the Common Reporting Standard about to come online, however, HMRC are empowered to crack down far harder than they have been able to before.
“All types of offshore investment income will be reported to the taxpayer’s home territory, which will include details of bank interest, annuities, as well as account balances and proceeds from the sale of financial assets. The 30th September is the date all of the more than 100 jurisdictions signed up to share taxpayer’s information will exchange this information.
“After this the Requirement to Correct is replaced by a much more ominous Failure to Correct.
“There are now just days until the penalties charged will be much higher, starting at 200 percent of the liability. Although they may be reduced, they will not go any lower than 100.
“This will combine with HMRC’s serious tax defaulters name and shame list, hosted on a public website and a huge reputational risk.”
Ms Brennan further commented: “Someone with a holiday home in the Dordogne who hasn’t declared rental income on it in previous years, for example £10,000 unpaid tax, could be liable for a fine of up to £20,000. These fines will hit many people who perhaps have a niggle at the back of their minds that they may have forgotten something a few years ago on overseas interests. It will be the layman who has simply forgotten to report that will suffer the most, rather than serial tax avoiders.
“Our experience in these matters is that HMRC’s starting point is often to believe the worst, and it can be difficult to persuade them an error is innocent. With these new rules, however, no matter how innocent the error the minimum penalty is still 100 percent of the tax due (unless the taxpayer has sought a second opinion from an independent adviser).
“Incorrect conclusions can be reached by HMRC when wires are crossed, and with the potentially huge penalties, this is a matter that cannot be swept under the carpet. If the taxpayer comes forward by way of voluntary disclosure before 30 September and demonstrates that the mistake is genuine, HMRC are likely to be a little more forgiving in their conclusions.”
Saffery Champness has 82 partners and partner equivalents and over 700 staff across nine UK offices, plus Dubai, Guernsey, Geneva and Zurich. The firm is also a member of Nexia International, a global network of almost 250 independent accounting and consulting firms, spanning 115 countries.
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