This time next year, the Government will be just about to implement its new Requirement to Correct (RTC) penalty regime.
RTC has been put on hold since the calling of the ‘snap’ General Election earlier this year, which may have led to some people thinking it wasn’t going ahead.
However, if you’ve not been following the RTC developments or if this is the first time you’ve heard about it, it can be difficult to know:
- What to do to prepare for it and;
- The impact it’s going to have on you and your business.
Keep reading, the Q&As below are designed to provide you with a handy overview of all things RTC-related, as well shed some light on the steps you ought to take next if it applies to you.
Q. When exactly is RTC going to be implemented?
A. September 30, 2018.
Q. Why is it being introduced?
A. Overall, RTC is designed to tackle offshore tax evasion and non-compliance. More specifically, it’s hoped that taxpayers will be encouraged to make sure that any undeclared UK offshore tax liabilities, relating to all periods up to and including April 5 2017 are fully disclosed to HMRC.
Q. Who will it apply to?
A. Anybody who has underpaid UK tax that relates to overseas assets. This includes UK residents, domiciled individuals and non-UK domiciled individuals, who are UK residents. It will potentially apply to offshore trustees too.
Liabilities such as income tax, capital gains tax and inheritance tax will all fall within the scope of RTC.
Q. How will RTC impact the people listed above?
A. RTC is a penalty regime so, if you have underpaid tax that relates to overseas assets, then you’re likely to be hit with a hefty fine from HMRC.
Q. How much are people likely to get fined?
A. Taxpayers who fail to correct historical errors relating to April 6 2017 to September 30, 2018 will face much tougher penalties, which include:
- A standard penalty of between 100% and 200% of the tax that’s not been corrected
- A 10% asset-based penalty (relevant to ‘the most serious cases’ where tax underpaid in a tax year is greater than £25,000)
- An enhanced penalty of 50% of the standard penalty amount if HMRC could show that assets or funds had been moved in an attempt to avoid RTC
- Naming and shaming of taxpayers ‘in the most serious cases’ (total loss of tax greater than £25,000)
Q. Are there any exceptions to these penalties?
A. The only defence for taxpayers who fail to correct their affairs is a ‘reasonable excuse.’ However, the RTC legislation attempts to limit when the reasonable excuse defence can be used.
Q. Are there any other implications taxpayers should be aware of?
A. Yes. Under RTC, HMRC’s assessment periods can be extended. This is to prevent the tax in question falling out of assessment during the correction period and to give HMRC enough time to take action. As a result, any tax that’s potentially assessable at April 6 2017 will remain this way until at least April 5 2021.
Q. What should taxpayers be doing about RTC?
A. Taxpayers who have evaded tax or have failed to pay the correct amount of tax in relation to their offshore affairs need to declare them as soon as possible. If you think this may apply to you, but aren’t sure, now is the time for you to seek expert advice.
Q. What is the process for making corrections?
A. Corrections can be made using several methods, such as through outstanding tax returns or via an HMRC enquiry. For more serious cases, the Worldwide Disclosure Facility (WDF) or Contractual Disclosure Facility (CDF) can be used.
We hope you’ve found these Q&As useful and that they’ve helped bring you up to speed on the new RTC regime. As with all Government legislation, we recommend that if you’re not sure if it applies to you, always ask an expert, as the implications – a minimum of 100% (up to 200%) in underpaid tax in this instance – can be significant.
To find out more about RTC or to find what action you might need to take, contact our team of tax specialists on 01905 777600 or email@example.com.
Anthony Middleton is responsible for monitoring all of Ormerod Rutter’s tax investigations and deals specifically with Corporation Tax and Income Tax enquiries. He has been a member of the team for 13 years.