Updated: Oct 5
Have you had your Tax Health Checkup yet?
Are you a UK Tax Payer?
Do you have any offshore interests or income?
Have these been reported to HMRC?
In 2015 HMRC announced plans for a new punitive penalty regime with minimum penalties of 100% of tax due for individuals with income sources from outside of the UK.
The new penalties will be implemented from September 2018 and in the meantime HMRC are encouraging taxpayers to review their tax affairs and ensure full compliance under the ‘Requirement to Correct’ (RTC) before the new penalty regime is imposed.
From September 2018 over 100 countries (including Canada) will start to exchange information with HMRC under the Common Reporting Standard and at this point HMRC will have visibility of all overseas income streams of UK taxpayers and for anyone who has not come forward already and corrected any errors in filing there will be harsher penalties imposed.
Who is affected?
UK taxpayers who have offshore income, including income tax, capital gains or inheritance tax.
The RTC period will end in September 2018. In the period 6th April 2016 to 30th September 2018 a review should be undertaken of all assets to ensure compliance and if any amendments need to be made these would be made under HMRC Worldwide Disclosure Facility (WWD).
How to Correct?
Corrections should be made using HMRC WWD. A notification to HMRC has to be made and a complete disclosure and payment of tax, interest and penalties has to be made within 90 days.
The taxpayer has an obligation to self assess his tax affairs including prior years and also to assess his behaviour over this time to determine relevant penalties that may be appropriate.
What if I don’t correct now?
After the RTC period has ended HMRC will have access to individuals overseas affairs from all of the 100 countries committed to the automatic exchange of information agreements and will then open enquiries into any taxpayers affairs that they feel may not be fully compliant in the UK reporting.
If the taxpayer is found to have incorrectly reported or failed to report then the sanctions will be significantly higher than they would be under RTC.
The starting penalty will be 200% of the tax liability not corrected in the RTC period. This can be increased to 300% for more serious cases where HMRC can show assets were deliberately moved with a view to shielding from HMRC.
They will also operate a ‘name and shame’ policy which could have the effect of damaging reputations.
How will HMRC find out about my overseas income?
Over 100 countries have signed up to automatically exchange information with HMRC from September 2018. 54 of these started as ‘early adopters’ and are ready to start exchanging information in 2017 and any Crown dependencies will start providing data from October 2016. In addition there will be a change from 2017/18 for UK non domciles which will mean that their offshore assets will become visible to HMRC.
What if I made a mistake?
HMRC will still accept a ‘reasonable excuse’ defence when reviewing any errors or failures (i.e to complete a return or notify HMRC that a return was due). This is narrow category, further limited in HMRC draft legislation to items such as insufficiency of funds (due to factors outside of your control only) and reliance on someone else, but only if you have taken reasonable care to ensure that the work is correct.
What should I do next?
We recommend an immediate review of all tax affairs of anyone who has an offshore income and assets.
Examples include, but are not limited to:
Overseas rental income (even if in a loss position for overseas jurisdiction a revised calculation should be completed for UK purposes as the UK will take different deductions to other countries in calculating the net profit.
Bank interest/dividends from foreign companies or banks
Stock transactions (sale or dividends from) in an overseas brokerage account
Income generated from overseas accounts which may be considered tax free in the other jurisdiction, for example Canadian RRSP accounts. These may be considered as non taxable in the home jurisdiction however the UK will look through the RRSP structure and consider any growth within the plan as taxable on an annual basis.
Benefits from offshore trusts
The review should include a check of the individual’s residency and domicile status as well as a look back over the last 4 years as a minimum, although HMRC can ask to go back and review up to 20 years if they believe the error was deliberate. You should consider any changes to tax laws in recent years and not rely on previous advice, which may not be current or relevant to your situation.
Trowbridge and GTN UK can offer a Tax Heath Check service for any individuals concerned about the new changes and who would like to discuss their tax affairs to consider if they should take advantage of the RTC period now.
For more information, please contact:
Wayne Bewick, Partner