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HMRC to fine undeclared offshore income or assets

Individuals paying UK tax and with offshore income or assets or who have transferred income abroad without paying UK tax on it, must notify HMRC by 30 September 2018 or face tough penalties from 1 October 2018.

HMRC introduced new legislation called the Requirement to Correct (RTC) requiring UK taxpayers to ensure all their foreign income and assets, where there might be tax to pay, have been declared to HMRC before 30 September 2018. Provided HMRC has been notified by 30 September of the individual’s intention to use HMRC’s Worldwide Disclosure Facility, they can have more time to send in the completed disclosure. If either of these deadlines are missed, penalties will be charged.

Income is considered to be “offshore income” if it comes from a territory outside of the United Kingdom. It includes:

• interest from overseas bank and building society accounts;

 • dividends and interest from overseas companies;

 • rent from overseas properties or if you rent out your UK property whilst living in another country;

• wages, benefits or royalties earned outside of the UK.

Those disclosing under the Worldwide Disclosure Facility have 90 days from the date they notify HMRC to make the disclosure itself. If the Worldwide Disclosure Facility is used to disclose foreign income and gains, which they have previously decided not to declare, before 30 September 2018, they would possibly only pay a penalty of around 30% of the tax due. If a disclosure is made after 30 September, the minimum penalty will be 100% of the tax due.

Dawn Register, partner in the Tax Dispute Resolution team at BDO, said: “After much anticipation, The Requirement to Correct (RTC) window is due to end on 30th September 2018. The RTC rules are designed to force UK taxpayers to tell HMRC about any offshore tax liabilities relating to UK income tax, capital gains tax, or inheritance tax. Failure to declare and correct tax irregularities or uncertainties will result in severe new penalties from 1st October onwards.

“However, advisers say that some UK taxpayers may still not realise they have a requirement to declare overseas financial interests — which include receiving foreign income from investments, transferring income and assets from one country to another, and letting out a UK property while living abroad. Indeed, awareness of RTC has remained low, despite the series of letters from HMRC. For some, letters that arrived over the summer, are very late in the day with little time to carry out all the necessary requirements. This has perhaps left many taxpayers with the dilemma of whether to “stick their head above the parapet” or risk severe new penalties for not doing so.

“There may be a reprieve for those who can prove to HMRC that they had a ‘reasonable excuse’ for not complying with RTC. Those who are concerned that they may have failed to comply with RTC should still seek advice as history suggests that HMRC tends to react more favourably to those who volunteer information, even post-deadlines, rather than sitting tight and hoping for the best!”

HMRC has produced a leaflet entitled Do you have any offshore income or assets? Technical guidance on the Requirement to Correct for agents and advisors can be found at https://www.gov.uk/ guidance/requirement-to-correct-taxdue-on-offshore-assets. For general information from an HMRC adviser call 0300 322 7012.

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