Requirement to correct offshore tax non-compliance highlighted following HMRC statement

Offshore tax

Paul Spicer, Head of Private Client in the South West at KPMG speaks to Business Leader Magazine around the current requirements for resolving any offshore tax non-compliance issues.

HMRC’s drive to stamp out non-compliance involving offshore issues has just significantly intensified.

Requirement to Correct is now in legislation and creates an obligation for any taxpayer who has undeclared UK liabilities that involve offshore issues (relating to Income Tax, Capital Gains Tax and Inheritance Tax) to correct their position on or before 30 September 2018.

This is the final chance for those with offshore interests to check their affairs and get them in order, otherwise they could face unprecedented minimum penalties of 100 per cent and up to 200 per cent of tax liabilities.

In addition, for more serious cases there are asset based penalties and public ‘naming and shaming’. After the September 2018 deadline, HMRC will have access to financial data from more than 100 jurisdictions that it will be able to review, assess and use to launch its own investigations.

The legislation represents a step change in HMRC’s approach as the penalties that bite for those who fail to correct will not differentiate between those who deliberately failed to pay the correct tax, those who might have been careless with their tax affairs and even those who may have taken reasonable care.

The penalties apply for failing to take corrective action by 30 September 2018. There is a defence against the penalty where there is a reasonable excuse why a correction was not made. Reasonable excuse is narrowly drawn and disqualifies tax advice in certain situations so even those who have previously taken advice should reconsider their position now.

Requirement to Correct should not be considered in isolation, but in the wider environment where transparency is increasing, and non-compliance is being targeted.

HMRC is also cracking down on those who have facilitated evasion.

Part 3 of the Criminal Finance Act 2017 applies to all organisations, such as companies and professional partnerships, that fail to prevent the facilitation of tax evasion – of either UK or overseas taxes by a person associated with them. For example and employee or agent. This is a strict liability offence where the only defence is to have reasonable prevention procedures in place.

If an organisation gets a criminal conviction, it will face an unlimited fine as well as enormous reputational damage. It is vital that businesses are alert to this legislation and are clear what they should be doing to establish a defence.