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UK Tax Agency Gives Offshore Evaders 'Final Chance'

by Robert Lee,, London

25 August 2016

The UK Government is consulting on proposals to impose tough new penalties on those who do not come forward and pay outstanding taxes from offshore investments and accounts.

The Government intends to introduce a "Requirement to Correct" (RTC) obligation, which "aims to compel those with offshore interests who have yet to put their UK tax affairs in order to do so by September 2018 ahead of the widespread adoption of the Common Reporting Standard (CRS)." Failure to do so by the end of the RTC period would make such individuals liable to a new set of legal sanctions for "failing to correct" (FTC).

HM Revenue and Customs said in a consultation paper on the topic: "We believe the RTC proposal and increased sanctions for failing to correct … will provide a strong incentive for taxpayers to review their offshore affairs and come forward to put them in order before HMRC receives the CRS data."

"The RTC will provide a final chance to put right anything that may be amiss and act as a driver for taxpayers with international affairs to review their tax position, seek advice, and ensure everything is in order," it added.

The Government will introduce RTC legislation in Finance Bill 2017, which will be published next April. The proposed "window" for action is therefore 18 months, and the end date of September 30, 2018, corresponds with the date by which all countries committed to the CRS will begin exchanging information. The Government expects that the RTC will cover all instances where there are outstanding UK tax liabilities or obligations on or before April 2017 that relate to offshore interests.

The Government envisages that the RTC will cover the correction of all the taxes within the scope of existing offshore penalties: income tax, capital gains tax, and inheritance tax, but may include others. It said it would expect the taxpayer or their representative to disclose any outstanding tax, interest, and relevant penalties due.

Where an affected taxpayer does not use the RTC by September 30, 2018, "the RTC will create a situation where the taxpayer has committed an additional offense on top of their original non-compliance by not correcting that situation by the end of the relevant window," HMRC said.

Rather than charging two sets of penalties, the new FTC sanction would usually be charged in place of the sanction for the original offense. The consultation document sets out two models for penalties, and seeks feedback on their application and the rates that could be imposed.

Commenting on the proposals, Tessa Lorimer, special counsel at law firm Withers, said: "This consultation represents the next step in HMRC's campaign to shut down any opportunities for offshore tax evasion, and looks ahead to when information sharing under the Common Reporting Standard will make offshore evasion virtually impossible. Following the termination of offshore disclosure facilities last year, this is the final chance for taxpayers to come forward to correct their outstanding tax liabilities before September 2018, after which the taxpayer will be subject to a new, tougher set of sanctions."

"Although the penalties proposed are harsh from a historic perspective, taxpayers should not expect to get a better deal in future."

The consultation closes on October 19.

TAGS: individuals | capital gains tax (CGT) | inheritance tax | compliance | tax | investment | tax compliance | interest | law | United Kingdom | ministry of finance | tax authority | offshore | legislation | penalties | individual income tax | Tax | Tax Evasion

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