HMRC have announced revised guidance relating to the Requirement to Correct which is currently in force alongside the Worldwide Disclosure Facility (WDF) but which comes to an end on 30 September 2018. On 1 October, the much stricter ‘Failure to Correct’ regime will begin, carrying penalties of up to 200% of the tax due if a taxpayer is found to have failed to correct his or her tax reporting in relation to any offshore assets. HMRC’s revised guidance allows taxpayers to take advantage of an extension of the disclosure period in which the new Failure to Correct penalties will not apply. To make use of this extension it will be necessary for taxpayers to either:
- register for the WDF on or before midnight on Sunday 30 September
- inform HMRC through the COP9 process that the taxpayer wishers to make a disclosure of deliberate non-complianc
- (if HMRC has an open enquiry into the taxpayer’s affairs) inform the HMRC caseworker on or before 30 September that the taxpayer will be making a disclosure to the caseworker by 29 November.
If the taxpayer wishes to register with HMRC by telephone (rather than online) the deadline is 4pm on 28 September. It is also worth noting that 30 September is a Sunday, and it may therefore be sensible to register on 28 September even if the taxpayer is using the online registration system.
Once the taxpayer has registered (by 30 September 2018) and HMRC has provided notice of the disclosure deadline (90 days from the date of HMRC's letter), any application for an extension of that deadline will mean that HMRC will apply the higher Failure to Correct penalties. These penalties could be up to 200% of the tax due if the disclosure is not made within the original timeframe. Any taxpayer who has not already registered for the WDF will therefore now be out of time to apply for an extension once they have registered without incurring the higher penalties, as any 90-day period beginning now will end after 30 September.
Making a nil disclosure
If a taxpayer is in any doubt whether she has any issue with his or her offshore assets (e.g. there is an argument that no tax is due but the position is not clear-cut), the taxpayer can make a disclosure that no tax is due. HMRC's guidance states that provided HMRC is in receipt of all the facts regarding this matter before 30 September 2018 the higher penalties under the Failure to Correct will not be due if HMRC later decide that tax is due. It will be very important that HMRC is given all relevant information within the disclosure period allowed to the taxpayer in order to prevent the higher penalties applying if HMRC disagree with the taxpayer’s analysis.
‘Reasonable excuse’ for not correcting position
There are specific rules regarding taxpayers who have taken professional advice confirming that they do not have any tax non-compliance issues.
The taxpayer may be able to claim to have a ‘reasonable excuse’ for not correcting his or her tax non-compliance and will not suffer the Failure to Correct penalties if HMRC determine that further tax is due where the taxpayer has taken advice that complies with the following:
- The advice is addressed to the taxpayer in person.
- The advice has been given by a person with relevant expertise who was not involved in establishing the original arrangements giving a tax advantage (HMRC refers to these as ‘ avoidance arrangements’ ).
- The advice takes all of the relevant circumstances into account.
If the advice does not meet these criteria the taxpayer will not have a ‘reasonable excuse’ however and the Failure to Correct penalties will apply.
However, if the taxpayer is relying on old advice and circumstances (or relevant legislation) have now changed, the advice may not be considered to be a ‘reasonable excuse’ and the higher penalties could still apply.
We recommend that a taxpayer who has an interest in any kind of offshore structure should consider taking new advice now from experts not connected with the original establishment of the structure. The new advice should protect the taxpayer from higher penalties in the future if HMRC determine that the structure or arrangement is in any way non-compliant.
How can Burges Salmon help?
Should you wish to discuss this any further please contact John Barnett or your usual Burges Salmon contact.