Tackling offshore tax evasion: A Requirement to Correct

HMRC has issued several consultation papers recently on the subject of tackling tax evasion and avoidance.

Here is yet one more.

This consultation is about a ‘Requirement to Correct’ (RTC) obligation that 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).

The proposal is to introduce new legislation requiring any person who has undeclared UK tax liabilities in respect of an offshore interest to correct that situation by disclosing the relevant information to HMRC, with new sanctions for those who ‘fail to correct’. The aim is to get taxpayers with issues relating to offshore interests into a compliant position, where they are not already. At the end of the RTC period (September 2018) there would be a single, simplified and tougher set of sanctions for offshore tax evasion.

This is primarily aimed at individuals and their advisors, but does have some, albeit limited, relevance to employers who may be involved in “assisting” certain employees to limit their tax liabilities

The consultation, which can be found here, runs until 19 October 2016.

The structure of the consultation document is as follows:

Chapter 2 sets out HMRC’s offshore evasion strategy, No Safe Havens (as updated in 2014) and overview of recent changes in offshore policy developments. Chapter 3 sets out the policy rationale for the Requirement to Correct (RTC) and the key objectives HMRC are looking to achieve through this policy. Chapter 4 sets out the different elements of the design of the RTC, considering the scope, definitions and process for how the correction should work. Chapter 5 sets out a number of principles in designing the FTC penalties alongside two possible alternative models which incorporate our thinking around the principles. Chapter 6 sets out our initial analysis on the impact of the proposals. Chapter 7 sets out a summary of the of consultation questions where we would welcome comments. Chapter 8 sets out how to respond to the consultation.

Chapter 4 sets out the proposed penalties which, by and large, follow HMRC’s approach in other areas. Namely - 100% maximum penalty with reductions given for:

Cooperation Size and Gravity (seriousness) Disclosure

However, for 2008/2009 the proposed penalties are:

The proposed penalties potentially increase in subsequent years depending on the territory involved

It is worthwhile noting that the 0% minimum for unprompted disclosure can only be achieved if disclosure is made before HMRC make contact. In other words, if HMRC advise that an enquiry is being started, that moves the penalty regime to “prompted” straight away.