Requirement to correct

HMRC introduced the requirement to correct (RTC) legislation as part of the Finance (No.2) Act 2017. Under this legislation, which came into effect from 6 April 2017, taxpayers were required to bring their offshore tax affairs up to date by 30 September 2018 or face significantly increased penalties. 

Offshore for these purposes includes UK tax arising on both assets and investments held offshore as well as potentially on UK assets where income is paid overseas, to a non-UK resident for example.

As the RTC window has now passed previously undeclared offshore tax liabilities will be subject to harsh failure to correct (FTC) penalties.

Failure to correct

Under the FTC legislation, errors in returns relating to overseas matters are liable to a maximum penalty of 200 per cent of the under-declared tax. These FTC penalties apply irrespective of the tax payers behavior, as such event innocent errors are treated in the same way as deliberate omissions.

The only way to mitigate the level of FTC penalty, is through co-operation with HMRC and by coming forward voluntarily by registering for a disclosure under the worldwide disclosure facility (WDF). Even so the minimum penalty will be 100 per cent of the tax liability for unprompted disclosures, or 150 per cent for prompted disclosures. Unless it can be argued that a reasonable excuse should apply. 

A further penalty of up to 10 per cent of the value of relevant offshore assets and public naming and shaming may apply in more serious cases.

How can RSM help?

RSM’s tax risk and investigations management team is experienced in advising on and managing HMRC disclosures and investigations to secure the best possible outcome. Equally RSM’s private client tax team has a wealth of experience in advising clients in relation to complex offshore arrangements, including how these should be structured and managed to mitigate UK as well as worldwide tax exposure. 

The depth of experience in our combined teams can support clients in addressing the potential risk presented by the requirement to correct legislation, including reviewing existing arrangements to:

  • provide an independent expert technical view as to their effectiveness;
  • advise on their robustness and ways in which they can be improved;
  • advise on how best to address any issues; and
  • deal with any disclosures to HMRC under the WDF to ensure that FTC penalties are kept to a minimum. 

If you would like to discuss any concerns you may have and how these may be resolved to ensure compliance and provide peace of mind going forward, please contact Andrew Walker, Paul Marcroft, Justin Stevenson or your existing RSM contact.


Keep up-to-date with the latest insights and events

The requirement to correct

Offshore tax matters. Act now or face stringent new penalties.

Download our flyer to find out more.