Requirement to Correct Legislation for Declaring Offshore Tax Liability

The Requirement to Correct (RTC) legislation requires those people with undisclosed overseas earnings to declare their tax liabilities to HMRC by the end date of 30th September 2018. This includes taxes related to Capital gains tax, Income tax or Inheritance tax for the relevant period. Once declared, HMRC will collect taxes and any penalty, if applicable from those who have gained interests overseas. Taxpayers should review their affairs and see whether they have any disclosed offshore tax liability before the end date as they might become liable to the FTC penalties. The RTC will apply on those cases where the non-compliance was committed before 6 April 2017.

What is offshore non-compliance?

Offshore non-compliance occurs whenever there is tax owed to HMRC involving an offshore transfer or any other offshore matter as a result of tax non-compliance charged on to the income source from outside of the UK, assets situated outside the UK or any activity carried outside of the UK. If a person falls under these rules but is unable to correct their position before the end date, then the new FTC penalties will be applicable. There are certain taxes which one must be aware about whose references are given below –

Offshore non-compliance: Income Tax If a person is receiving interest from a bank located outside of the UK but has not declared this income to the tax authorities, then this case falls under non-compliance involving an offshore matter. If a person has received cash in the UK and used that cash to open a bank account overseas before 6 April 2017, then it falls under non- compliance involving an offshore transfer.

Offshore non-compliance: Income Tax & Capital Gains Tax If you have a home outside of the UK and do receive a rental income but have not disclosed it to HMRC, then it falls under non-compliance involving an offshore matter. If you have sold a property with some gain and have not declared it, then it should also be corrected under the RTC rule.

Offshore non-compliance: Inheritance Tax If you have inherited some money or property from someone who was domiciled in the UK during the time of their death and have not disclosed it, then it should also be corrected under RTC.

Offshore non-compliance: non-resident landlord If you reside outside the UK but own property there and get rent through that property in the country where you are currently staying, then this income should be disclosed to HMRC. In case you have not disclosed this income and also not filed a return, then you fall under non-compliance involving an offshore transfer.

What happens if you do not correct your returns?

If HMRC has send an assessment to you on or before 6 April 2017 and you have not corrected it before the end date, then the FTC penalty will apply-

Standard Penalty

The standard penalty will be 200% of the tax liability which was not disclosed to HMRC under the RTC. However, it can be reduced up to 100% of the tax not disclosed depending on certain factors like how much did you cooperate with the officials, how much did you disclose and how genuine and serious you were in correcting your failure to return the appropriate tax amount.

Asset Based Penalty

10% of the value of the assets will be charged which was not declared to HMRC under RTC for the year in which tax was in excess of £25,000. This will be charged in addition to the Standard Penalty.

Offshore Asset Moves Penalty

In case a person has moved assets in order to their assets being not reported to HMRC, then, two penalties will be applicable. In the first case a standard penalty will be applicable and in the second case 50% of the standard penalty will be applicable.

How to avoid yourself from getting penalised?

As per the rules, if you have a ‘reasonable excuse’ for not being able to correct, then the penalty will not be applicable, however, you will have to pay the taxes. There are certain specific circumstances as per the RTC legislation that cannot be accepted as a ‘reasonable excuse’ like insufficiency of funds unless events outside of your control, relying on any other person or relying on advice in certain circumstances. Overall, it is always advisable to hire an accountant and sort out the differences. If the returns are not fulfilled by 30 September 2018, then the FTC penalty will be applicable and it would be very difficult to prove to HMRC your excuse as a ‘reasonable excuse’.

Also See:What is an Offshore Company? Why are they created?

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.