The ‘Requirement to Correct’ obligation

A consultation document released by HMRC on 24 August 2016 has outlined the introduction of a new ‘Requirement to Correct’ (RTC) obligation, with the intention for the RTC to be introduced in the Finance Bill 2017.

The RTC places an additional obligation on those who have undeclared UK liabilities relating to offshore interests to put their past affairs in order by September 2018 before the widespread adoption of the Common Reporting Standard (CRS). Those who do not bring their tax affairs up to date by 30 September 2018 will face tough new penalties for their ‘Failure to Correct’ (FTC).

HMRC has suggested that the RTC should cover any taxpayers that have a UK tax liability that relates wholly or in part to an offshore issue, which includes tax losses relating too:

  • income arising from a source in a territory outside the UK
  • assets situated or held in a territory outside the UK
  • activities carried on wholly or mainly in a territory outside the UK, or
  • where funds connected to a tax loss not within the above are received or owned in a territory outside the UK or are transferred to a territory outside the UK.

HMRC is intending to leave the method by which the undisclosed liabilities are declared up to the taxpayer, however they expect the majority of individuals to disclose via the new Worldwide Disclosure Facility (discussed further below), or via another route for example the Contractual Disclosure Facility (CDF).

Sanctions to be introduced following the end of the RTC period

The RTC offers a final chance for taxpayers to bring their tax affairs up to date before HMRC’s response to offshore evasion gets much tougher. Those who are found to have undeclared offshore investments and accounts following the end of the RTC period on 30 September 2018, may face tax-geared penalties of up to 200% of the tax they have attempted to evade (though the full penalty regime is still to be confirmed). There may also be additional asset based penalties and an increased risk of criminal prosecution and ‘naming and shaming’.

HMRC has emphasised that they will be able to further target offshore tax evaders once they begin to receive huge swathes of data on offshore accounts located in the Crown Dependencies and British Overseas Territories from October 2016. This exchange of data is being implemented before the introduction of the Common Reporting Standard (CRS), which will provide HMRC with a greater volume of data from across the world.

The Worldwide Disclosure Facility (WDF)

On 5 September 2016 HMRC will open its Worldwide Disclosure Facility. This last chance facility allows those with unresolved offshore tax issues to bring their affairs up to date with HMRC, though no special terms will be offered. Further details on the terms of the WDF will be released in the coming weeks.

HMRC has said that the introduction of the WDF will form part of an extensive package of measures representing a significant toughening of the Government’s approach to tackling offshore tax evasion and those who enable it.

Director General of Enforcement and Compliance for HMRC, Jennie Granger, said: “Our message is simple – come to us, pay the tax and penalties that are due, before we target you with the introduction of even tougher sanctions and game-changing data.

Edwin Coe’s Tax team has a market-leading reputation in the management of HMRC investigations. If you or your clients are considering how best to disclose historic tax irregularities, please do not hesitate to contact any member of the Edwin Coe Tax team.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

Edwin Coe LLP is a Limited Liability Partnership, registered in England & Wales (No.OC326366). The Firm is authorised and regulated by the Solicitors Regulation Authority. A list of members of the LLP is available for inspection at our registered office address: 2 Stone Buildings, Lincoln’s Inn, London, WC2A 3TH. “Partner” denotes a member of the LLP or an employee or consultant with the equivalent standing. This guide concerns the law in England and Wales and is intended for general guidance purposes only. It is essential to take specific legal advice before taking any action.

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