The carrots have been expended; the stick is about to be wielded; the penalties will hurt.
Schedule 22 Finance Bill 2017 (Schedule 22) contains the provisions to enact Requirement to Correct; the penalty consequences for failure are severe.
What’s to correct?
Undeclared UK tax liabilities relating to offshore assets up to 5 April 2017.
Taxpayers (and their advisers including trustees, accountants etc.) are required to bring errant historic positions up to date by 30 September 2018 otherwise tougher new penalties will apply.
What are the penalties for failure?
The penalty starting point is 200%, the standard penalty, of the Potential Lost Revenue (PLR), broadly the tax at stake.
The penalty can be mitigated depending on the “quality” (determined by HMRC) of the disclosure.
BUT, the penalty has a collar below which it may not be reduced; the collar being 100% of the PLR.
If HMRC can show the taxpayer took steps to move the offshore assets and funds in an attempt to avoid Requirement to Correct an enhanced penalty of 50% of the standard penalty may also be levied.
Asset based penalties
If a penalty is imposed under the above provisions, a further asset based penalty may also be levied if the PLR threshold is reached.
The standard amount of the asset-based penalty is the lower of:
- 10% of the value of the asset, and
- the offshore PLR x 10
The penalty may be mitigated depending on the “quality” of the disclosure.
The offshore PLR threshold is reached in relation to a tax year where the quantum of tax due exceeds £25,000.
What taxes are involved?
Income Tax. Capital Gains Tax. Inheritance Tax. For now.
Others may be added to these provisions in the years to come.
Are there any other issues to consider?
If the offshore PLR in relation to the penalty exceeds £25,000, or the aggregate offshore PLR in relation to multiple penalties also exceeds £25,000, HMRC may publish the name, address, penalty, offshore PLR and other details in relation to the defaulter.
The prospect of highly punitive and potentially multiple penalties applicable to offshore tax non-compliance mean now really is the time to act to limit the cost and potential publicity.
If you wish to discuss a matter involving the Requirement to Correct, please contact me at firstname.lastname@example.org or Paul at email@example.com.