UK TAXPAYERS COULD FACE PENALTIES IF THEY FAIL TO DISCLOSE UNDECLARED OFFSHORE TAX LIABILITIES BEFORE NEW LEGISLATION COMES INTO FORCE ON 30 SEPTEMBER 2018
On 30 September 2018 new legislation called ‘Requirement to Correct’ (RTC) comes into force. It requires UK taxpayers to notify HM Revenue and Customs (HMRC) about any offshore tax liabilities relating to UK income tax, capital gains tax or inheritance tax. Tax penalties will be significantly higher for those who do not declare offshore liabilities before 30 Septembe
HMRC has expressed concern that not all UK taxpayers will realise that they are subject to this requirement to declare their overseas financial interests. Activities such as renting out a property abroad, transferring income and assets from one country to another or even renting out a UK property when living abroad could mean that taxpayers face a tax bill in the UK.
The introduction of this legislation coincides with global transparency measures which will give HMRC automatic access to financial information from over 100 countries. These measures meant that HMRC will be able to detect offshore compliance and tackle tax evasion easily. As a result, HMRC is urging taxpayers to correct any non-compliance.
What is offshore tax non-compliance?
Offshore tax non-compliance is tax owed to HMRC as a result of an offshore matter or transfer prior to 6 April 2017.
The RTC rules only apply to non-compliance committed before 6 April 2017.
Offshore matters relate to income arising outside the UK, assets situated outside the UK or activities carried on wholly or mainly outside the UK.
This might include rental income on a holiday home in Spain or a gain on the sale of a Spanish holiday home.
Offshore transfers relate to offshore matters where the income was received outside the UK or transferred outside the UK before 6 April 2017.
This might include transferring UK rental income to Spain without paying UK income tax.
What are the penalties for non-compliance?
Unless you have what HMRC deem to be a ‘reasonable excuse’, penalties under RTC will be between 100% and 200% of the tax, regardless for the reason for the error.
Where non-compliance involves an asset, the penalty will be up to 10% of the value of the asset where the tax is over £25,000 in a tax year.
The penalty will be increased by up to 50% where assets and funds are found to have been deliberately moved to avoid RTC.
Who does this affect?
This affects individuals who were UK residents for tax purposes. These rules do not change the fact that individuals who are not UK resident for tax purposes do not have to pay UK tax on foreign income.
What should you do?
Anyone with offshore financial interests should review their affairs and correct any UK tax irregularities and disclose these to HMRC before 30 September 2018.
Once an individual has notified HMRC of their intention to make a declaration they will have 90 days to make the full disclosure and pay any tax owed.
How can Corral & Alcaraz help you?
If you are concerned that this legislation may affect you, we can help with a review of your affairs. This may include reviewing your UK tax residence status to ensure that this was correct throughout the period prior to 6 April 2017.
If necessary, we can help you with disclosing irregularities to HMRC and negotiating time to pay arrangements.
If you are confident that your tax affairs are in order you do not need to worry. If however you are unsure, we recommend that you seek the advice of our tax team.