By Stuart Petrie, senior tax manager at Anderson Anderson & Brown LLP
Unfortunately this is not a question about the duty free goods which accompanied you back from your summer holiday! On 30 September 2018, the opportunity to tell HMRC about previously undisclosed overseas assets or income, using the beneficial terms of their Worldwide Disclosure Facility (WDF), will end.
After 30 September, where tax is found to have been underpaid on any overseas assets, income, activities or transfers, the consequences are eye watering including penalties starting at 200% of the tax due and an entry in HMRC’s published list of tax dodgers.
The Requirement to Correct (RTC) is the latest weapon in HMRC’s crackdown on offshore tax evasion. RTC places a statutory obligation on taxpayers to correct any offshore tax non-compliance as at 5 April 2017. It applies to Income, Capital Gains and Inheritance Tax and to all tax payers i.e. individuals, partnerships, trustees and companies.
With the automatic exchange of tax and financial information between tax authorities on a global level, HMRC will be in possession of an unprecedented amount of information, identifying individuals based in the UK, who have assets or income arising in overseas countries. HMRC will be cross checking this information against Tax Returns filed already and identifying where Tax Returns should have been filed.
HMRC have put in place a number of disclosure facilities to encourage tax payers to come forward and settle the tax due on previously undisclosed income and gains, both UK and overseas. The most recent facility is the WDF which allows for significantly reduced penalties.
The opportunity to use the WDF comes to an end very soon. The intention to use the WDF must be notified to HMRC by 30 September 2018. After that, a full disclosure of all of the relevant information must be made within 90 days i.e. by 29 December 2018.
Penalties for an unprompted disclosure under the WDF are likely to be low, around 10% of the tax due, where tax return omissions are regarded as careless. If omissions are deliberate, the penalty is likely to be around 30% assuming full co-operation is given.
If notification to disclose is not made by 30 September 2018 and the tax liability is not fully disclosed within the 90 day window, there will be a “Failure To Correct (FTC)”. If a tax liability subsequently comes to light, whether uncovered by HMRC or the tax payer and irrespective of whether the omission was deliberate or careless, the FTC sanctions will bite.
- Penalties of 200% of the tax liability. These can be reduced depending on the circumstances of the case but will be no less than 100% of the tax liability, even in the case of genuine errors and mistakes.
- An Asset based penalty of up to 10% of the asset value.
- Publicity of being “named & shamed” on the HMRC website where the undisclosed tax exceeds £25,000.
- A further penalty of up to 50% of the FTC penalty where HMRC can prove assets were moved in an attempt to avoid RTC.
Frequently individuals genuinely do not appreciate their reporting requirements associated with overseas assets or investments. The Oil and Gas sector is a global workplace and can result in shares or benefits being received when overseas, which may still be liable to UK tax.
If you have overseas assets or income which have not featured on your UK tax returns, you should take advice NOW to establish whether you have a ‘Requirement To Correct' historic tax returns.
We have helped a number of individuals to make a disclosure under WDF with significantly reduced penalties.