There are new tough penalties on the horizon for UK taxpayers who haven’t told HMRC about foreign income or gains on which UK tax may be due.

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In 2016, HMRC began a new initiative to bring taxpayers up to date if they hadn’t declared all their income or gains arising outside the UK. As part of this, the ‘Worldwide Disclosure Facility’ was set up for taxpayers to notify HMRC about any outstanding liability.

There are three key developments making the initiative particularly important just now. One is HMRC’s imminent ability to access financial information from over 100 different countries under new international information-sharing powers. The ‘Common Reporting Standard’ gives access to information about bank accounts and investments in jurisdictions worldwide.

The second is the ‘Requirement to Correct’ (RTC). The purpose of the RTC legislation is to require those with undeclared offshore tax liabilities to correct the position by 30 September 2018. The liability could relate to income tax, inheritance tax or capital gains tax, and applies to non-compliance that took place before 6 April 2017. It means that HMRC can go back to the tax year 2013/14, or 2011/12 if the failure to disclose is ‘careless.’ Where the loss of tax is due to ‘deliberate’ behaviour, HMRC may be able to go back further than this. There is no set route for making a disclosure, but a person could, for example, comply with the RTC by using the Worldwide Disclosure Facility.

Finally, from 1 October 2018, a much tougher penalty regime for failure to correct is brought in, with a minimum penalty of 100% of the tax owed, in addition to the outstanding tax and interest on overdue tax.

Who and what is affected?

Individuals, partnerships, trustees or non-resident landlord companies are all within the scope of these rules.

UK residents are liable to UK tax on their worldwide income and gains, and a wide variety of common situations can potentially give rise to tax consequences in the UK. These include letting out a property abroad, such as a holiday home, or receiving income from a share in a family business overseas. Receiving income from an offshore bank account is another common example – and ‘offshore’ in this context includes the Channel Islands, Isle of Man and Republic of Ireland, the EU or anywhere else in the world.

The tax treatment of offshore income is complex, but acting with professional assistance should always ensure a better outcome. Please do not hesitate to contact us for advice.