You will have no doubt heard about HM Revenue and Customs’ ongoing efforts to crack down hard on tax evasion over the last decade. Also, in recent years, HMRC have employed an ‘iron fist in a velvet glove’ approach for cases of offshore tax avoidance.

We are, of course, talking about Requirement to Correct; a scheme implemented by HMRC to encourage those with undeclared offshore tax liabilities to come forward voluntarily in exchange for lighter penalties.

What HMRC have to say about Requirement to Correct

The Requirement to Correct concerns those with offshore tax liabilities that they have not yet declared to HMRC, relating to any Income Tax, Inheritance Tax, and Capital Gains Tax they may owe.

The legislation states that these people must disclose these undeclared liabilities “to HMRC on or before 30 September 2018”.

So, what exactly is affected by Requirement to Correct?

You will need to inform HMRC of any offshore matters regarding income, assets, and capital gains you have made overseas, as well as any income or capital gains made in the UK and, have transferred out of the country.

HMRC aim to seek out taxpayers that have:

  • Failed to complete a tax return,
  • Made a mistake on their tax return, or
  • Did not inform HMRC they should have filed a return as they had an income to declare.

As mentioned, the deadline for compliance with Requirement to Correct is 30th September 2018. By this point, you must have declared all non-compliance over the period up to and including 5th April 2017 or face risking hefty penalty fines in addition to repaying the amount owed.

If you declare by the deadline

Of course, HMRC is not going to let you off if you report by the deadline. They will demand that the overdue payment is made in full. You will almost certainly pay interest on the amount too.

That may not sound, on the face of it, an attractive option but it is far more preferable to the alternative…

If you do not declare by the deadline

Those that do not take up HMRC’s offer and fail to declare their tax non-compliance by the set date will almost certainly face a 100% penalty on top of the tax they owe.

And, should HMRC believe you are purposely not helping during their investigation, this charge could rise to 200%.

If HMRC has reason to believe that you moved your offshore assets in a purposeful attempt to hide your tax liabilities, the fine could even go as high as 300% of the total tax you owe. If the tax you owe exceeds £25,000, HMRC may also charge 10% of the total asset amount on top of your bill.

HMRC have also hinted that they will also pursue a ‘name and shame’ policy for the worst offenders following the deadline. This information would come up whenever someone performs checks on you or your company, so the reputational damage could be extremely serious.

So, how would this look in practice?

William has undeclared income from an overseas investment portfolio worth £7million. He has also failed to report this information on his UK tax return for the past six years; out of carelessness rather than deliberate behaviour.

That means William owes HMRC tax of around £100,000 per year over that period of time – bringing his offshore tax liability to £600,000.

If William were to disclose this tax non-compliance voluntarily right now, he would be charged the full £600,000 he owes in tax plus interest. He would not, however, face any penalty fees for failing to disclose earlier.

If William failed to disclose the information before the 30th September 2018, he would be made to pay the total £600,000 owed in tax with interest, as well as a minimum penalty fee of £600,000 up to a maximum of £1.2 million. That means his total bill for ‘failing to correct’ would be between £1.2 and £1.8 million.

However, if HMRC believe William deliberately attempted to hide his offshore tax liabilities from them, in addition to the penalties above, he could face further penalties of up to £700,000. He would also likely be ‘named and shamed’ on HMRC’s list of deliberate tax defaulters; greatly damaging his reputation and business.

This would bring his total punishment for failing to disclose offshore tax non-compliance up to a maximum of £2.5million for an original bill of just £600,000.

What should you do?

If you are rent out property abroad, have recently sold assets overseas, or make any other kind of income outside of the UK, speak to the Maple Accounting team today.

The fines for failing to comply with the Requirement to Correct can be severe so if you are unsure whether or not it applies to you, talk to one of our highly qualified tax advisors. We’ll be able to help make sure all of your paperwork is in order.

Please get in touch with us today on or call our head office 01332 207 336