The Requirement to Correct “(RTC)”

RTC deadline – ready to disclose?

The Requirement to Correct (RTC) deadline of 30 September 2018 is fast approaching. By this date individuals need to have notified HMRC of any undisclosed offshore tax liabilities arising on or before 5 April 2017, or face the risk of HMRC uncovering these at a later date and applying a new, extremely harsh, penalty regime.  This is a deadline we have been reminding clients and contacts about since mid-2017.

The RTC applies to undeclared income tax, capital gains tax and inheritance tax in relation to offshore matters. This may include overseas rental income or property sales, distributions from trusts or undisclosed overseas bank accounts.

The Common Reporting Standard (CRS) is the mechanism by which HMRC will automatically receive financial information from 102 countries, with more countries expected to sign up in the near future.

With the level of information HMRC will be receiving under the CRS, the likelihood that they will discover previously undisclosed offshore assets and income has never been higher. There have been previous opportunities to disclose offshore tax irregularities, such as the Liechtenstein Disclosure Facility, so the 30th September deadline is seen as the last chance for individuals to bring their tax affairs up to date, ahead of the RTC deadline

Under the new rules, failing to notify HMRC of errors by 30 September 2018 and shortly thereafter make full-disclosure of the error and paying the tax, interest and penalties under the current regime, will result in a standard penalty of 200% of the tax. This can be reduced based on the quality of disclosure to HMRC, and the level of co-operation with HMRC, to a minimum of 100% of the tax.

In the most serious cases, where the tax exceeds £25,000 in any tax year and the individual knew that they should have corrected this before the 30th September 2018 deadline, there is also an asset-based penalty. A penalty of up to 10% of the value of the undisclosed offshore assets will be charged and this is in addition to the standard penalty as explained above.

There is also an enhanced Offshore Asset Moves Penalty, where assets were moved to avoid having details reported to HMRC under information exchange agreements. This includes changing ownership arrangements, such as transferring to a trust or company. The penalty in this situation is 50% of the standard penalty.

In addition to the penalties above, HMRC have lowered the bar for their policy on Publishing the Details of Deliberate Defaulters in relation to offshore matters; they will now consider publishing an individual’s details as a tax defaulter if the total tax is over £25,000 and the tax liability was known about at the RTC deadline, regardless of whether there has been full cooperation.

Under the current penalty rules, if an unprompted disclosure was made in exactly the same circumstances, there would be a minimum deliberate penalty of either 30%, 40% or 50%, depending on the territory involved.

There is no need for panic if no action has yet been taken. It is not necessary to have made a full disclosure by 30 September 2018, provided you notify HMRC of the intention to correct your tax affairs by that date (and you file the disclosure within 90 days) you will be protected from the new penalty regime. This will mean that current penalty rules can be applied to disclosures, a much better position when compared to the penalty regime after this date.

If you believe the RTC may apply to you, or you would like to discuss your situation, please do not hesitate to contact us.