Under the incoming rules, failing to correct the historic tax positions of offshore assets before 30 September 2018 can lead to a minimum tax penalty of 100% up to a maximum 200%, plus a 10% asset charge.
The plans go beyond catching tax evaders and can also sting well-intentioned, otherwise compliant taxpayers – KPMG’s Derek Scott (pictured) has warned.
“There is a tendency for those with offshore aspects to their affairs to think HMRC are targeting tax evasion and deliberate defaulters only. RTC is much wider and anyone with offshore issues should take heed of what RTC is,” Scott told International Adviser.
“RTC isn’t just for those who need to make a voluntary disclosure and pay back taxes to HMRC. The ‘correction’ that RTC requires could equally involve informing HMRC of the offshore issues that impact your UK tax affairs and why the position that has been declared is correct.
“How much are people aware of Requirement to Correct? And I would include financial advisers in this."
“How much are people aware of requirement to correct? And I would include financial advisers in this. How many grasp that tax advice can be disqualified and invalidate the reasonable excuse defence to these significant penalties? My concern is people aren’t engaged enough.”
For Scott, RTC is just part of the direction of travel for offshore which taken with the consultation on extending the length of time investigators can go back into affairs indicates a rising bar.
“People should be treating RTC as a health assessment and make sure their affairs are in order,” said Scott.
“It seems to me like good practice for IFAs to tell clients RTC is harder and wider than anything we’ve seen before. Clients need to be informed about it and you don’t want to be sleep walking into tax issues after 30 September 2018.”
A potential pitfall
The new RTC fines can catch people regardless of reasonable excuses if steps are not taken to correct.
Scott warns that one of biggest issues is where a tax liability arises and finding that advice you received is disqualified for the purposes of having a reasonable excuse. This can happen if the advice falls into the ‘interested parties’ category.
Tax advice can be disqualified if it came from an interested party, for example when the adviser was the person who recommended or otherwise helped you enter the offshore tax planning in the first place.
Under RTC, if there is any doubt about a structure, clients need to consider whether a correction is required. One option is for the client to go to another adviser to get a second opinion, which won’t be disqualified.
Scott leads KPMG’s private client tax disputes and investigations team. He advises high net worth individuals, families and their companies who are under enquiry or who are making voluntary disclosures to HMRC.
Prior to joining KPMG, Scott was an inspector of taxes for the Inland Revenue.
