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An End to HMRC’s ‘Light Touch’ Approach?

HMRC have announced a consultation outlining a new scheme to tackle offshore tax evasion.

Named “Requirement to Correct” (RTC), the consultation proposes that taxpayers who have unreported offshore tax liabilities should come forward before 30 September 2018. This date is significant as it coincides with the date when all countries who have committed to the Common Reporting Standard (CRS) will be exchanging data. From October 2018, HMRC will have access to the financial records of 101 countries.

The consultation suggests a ‘carrot and stick’ approach, where RTC will be replaced by a harsher regime from October 2018. Some notable features are:

  • Inheritance Tax will fall within the scope of RTC.
  • HMRC intends for RTC to address all non-compliance, regardless of taxpayers’ underlying behaviour and reasoning. The consultation does not say what this means, but HMRC has previously been accused of treating tax avoidance and tax evasion as the same. RTC may, therefore, be the next step in formalising HMRC’s controversial approach.
  • There is no proposal to reduce penalties to encourage taxpayers to come forward. This is unlike the US Streamlined Foreign Offshore Procedures or even HMRC’s now closed Lichtenstein Disclosure Facility.

The consultation closes on 19 October, and there will undoubtedly be adjustments to the proposals after the consultation responses. However, reading between the lines, HMRC considers it will soon be in a strong position to enforce compliance and are viewing RTC as a last chance for taxpayers to come forward.

HMRC have also recently announced another new disclosure facility, called Worldwide Disclosure Facility (WDF). This launched on 5 September 2016 and is a separate regime for disclosing offshore tax liabilities. It is unclear how RTC and WDF will interact, however, RTC is expected to be in force from summer 2017 so WDF will be the main offshore disclosure facility until then.

US taxpayers living in the UK should remember that they are required to pay UK tax on their worldwide income and gains unless claiming the remittance basis of taxation. HMRC will, therefore, expect you to file a UK tax return in addition to your US tax return.

If you think you have undisclosed UK tax liabilities, please speak to your US Tax & Financial contact and they will arrange a time to discuss the matter fully.

If you are not a client of ours, please contact Helena Turner who will be happy to discuss how we can help.

Please see our previous post for more information on WDF.

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