In last week’s Tax Brief, we considered what the outcome of HMRC’s Requirement To Correct (RTC) consultation might look like following the Chancellor’s much anticipated announcement in the Autumn Statement.
Clearly, the prime focus behind the RTC is to encourage those who have deliberately failed to disclose significant tax liabilities as a result of holding money or property offshore to come forward voluntarily and settle up with HMRC. There have been several offshore disclosure initiatives over the past decade and individuals who are fully aware of known offshore tax irregularities have now missed the chance to own up and obtain what would have been a settlement on favourable terms.
In the light of the Common Reporting Standard (CRS), under which 100 jurisdictions worldwide will freely share financial information, HMRC’s net is closing fast and the RTC will effectively provide one ‘last chance’ to disclose offshore irregularities without incurring what are likely to be draconian ‘Failure To Correct’ (FTC) monetary penalties of between 100 per cent and 300 per cent of the tax underpaid. Other proposed sanctions are likely to include HMRC being granted an additional five-year timeframe for raising back year assessments and 'naming and shaming'.
We fully appreciate and support HMRC’s desire to crackdown on those who, by setting up offshore bank accounts or acquiring offshore assets have deliberately sought to underpay their taxes.
However, we are mindful that there will be UK resident taxpayers who have made simple mistakes - for example, overlooking the need to disclose to HMRC overseas rental income or bank interest which has already been taxed in the country in which the account or property is situated. Whilst such income will be taxable here in the UK, innocent misconceptions should not in our view lead to automatic penalties. We feel that perhaps a minimum FTC level of underpaid tax needs to be set before the full force of the sanctions come into play and, in particular, the defence of 'reasonable excuse' should be very clearly defined to ensure that only 'light touch' sanctions apply where simple mistakes occur.
People with offshore income and assets who are clearly at the opposite end of the scale to deliberate tax evaders are likely to unknowingly miss the RTC deadline and find themselves being challenged by HMRC after September 2018. In our view, the FTC legislation needs to recognise that the UK tax code is complex. Individuals do make genuine mistakes and we would urge the Chancellor to consider adopting proposals that ensure only the true tax evaders are subjected to the full force of the proposed sanctions.
If you would like to find out more, please contact Mike Down or your usual RSM contact.