'Failure to Correct' sanctions are around the corner - tick tock...

Legislative provisions are already in place, requiring individuals to voluntarily disclose historic UK tax non-compliance (errors, mistakes and deliberate actions) in relation to income/gains arising and assets held outside of the UK.

Under HM Revenue & Customs’ (HMRC) ‘Requirement to Correct’ (RTC) window to do so, such voluntary disclosures must be made by the end of September 2018, following which the highly punitive, new financial and non-financial sanctions commence – ‘Failure to Correct’ (FTC).

Tax practitioners will agree that it is more important than ever to ensure that one’s financial and tax affairs are reviewed, urgently, to ensure that there is little or no exposure to the RTC/FTC provisions, because the new sanctions are particularly difficult to manoeuvre.

I am not going to discuss here HMRC’s automatic and annual receipt of rich financial/banking records from 100+ jurisdictions (under the Common Reporting Standard). This has and continues to be well rehearsed by practitioners. For those that have managed to miss this news, might I suggest you refer to these in the first instance?

The Common Reporting Standard—What is it and Where are we now? Bloomberg

Making UK tax more transparent, less taxing, India Incorporated (India Business Global)

Transparent investments, Taxation

New FTC sanctions  

Simply put, failure to disclose and correct tax irregularities by 30 September 2018 will attract the new and significantly more stringent FTC sanctions, including for example:

• a minimum financial penalty of 100% (of the tax payable) - irrespective of whether mistakes were made due to carelessness
• HMRC more easily 'naming and shaming' those being charged penalties
• an asset-value based financial penalty of up to 10%

Also, don’t forget that where relevant offshore assets have been moved from one jurisdiction to another (less transparent one), then there could be an additional financial penalty, representing 50% of all other relevant penalties being charged!

While some of these sanctions will only apply in the most serious of cases, e.g. where individuals have acted deliberately, the new minimum 100% financial penalty is a first for HMRC – clients be aware!

Safeguards

By way of safeguards, individuals can only escape the FTC penalties where a satisfactory ‘reasonable excuse’ existed and is demonstrated to HMRC. For those that are familiar with ‘reasonable care’ provisions you will recognise that these are not the same. Individuals facing FTC penalties will not be able to take comfort from reliance on third parties, or necessarily resting behind tax advice (where corresponding implementation phase(s) involved the same adviser. Broadly, a reasonable excuse exists where some event(s) was/were outside of the individual’s control, and usually that any obligations were then met swiftly after such an event ceased.

Next steps

The above is simply a quick canter through a major issue affecting so many individuals/our clients, but arguably where sufficient action is still not being taken.

Time is running out – September 2018 is fast approaching – for those potentially affected by the new RTC and FTC provisions.

I recommend that anyone even vaguely of the thought that they might have an issue (account(s)/asset(s)/holding structure(s) to review, rather than resolve, take professional advice ASAP, on a free and confidential basis, to explore their potential exposure.