(Pinsent Masons) -- The UK's HM Revenue & Customs (HMRC) has revised its guidance to clarify that a 'failure to correct' penalty will not be charged under newly introduced rules if full disclosure of an offshore tax irregularity is not made by 30 September, as long as the fact that an offshore tax irregularity exists is disclosed by that deadline and the full disclosure is made by 29 December 2018
Taxpayers who have underpaid income tax, capital gains tax or inheritance tax involving offshore matters are required to correct past non-compliance before 30 September 2018. Only tax non-compliance committed before 6 April 2017 is covered.
A failure to correct by the deadline means HMRC will be given a further four years beyond the usual timeframes in which to assess the under-declared tax and a new super penalty of between 100% and 200% of the potential lost revenue will be charged. In the most serious cases a further penalty of up to 10% of the value of a relevant asset can also be imposed and HMRC will be able to ‘name and shame’ on their website.
The minimum 100% penalty will apply even where someone has been careless with their affairs - intent is not necessarily required.
"It is helpful that HMRC has updated its guidance to confirm that they will not charge a failure to correct penalty if a person notifies them there is a potential matter to be corrected by 30 September 2018, for example by registering under the Worldwide Disclosure Facility, and importantly, follows up with the relevant disclosure within the 90 day deadline of 29 December 2018," said Josie Hills a tax investigations expert at Pinsent Masons, the law firm behind Out-Law.com.
"The guidance allows breathing space to put together the full disclosure for those who have notified an irregularity before 30 September. However, with the main holiday period upon us, anyone who thinks they may have underpaid UK tax in respect of an offshore asset or matter needs to take specialist advice urgently as the initial disclosure must still be made by 30 September and it may take some time to quantify the amount of tax underpaid, particularly where complex structures are involved," she said.
"It is possible to withdraw a notification to correct where it is identified that a disclosure is not needed following notification so if there are any taxpayers who are uncertain about whether their affairs need to be regularised, they should err on the side of caution and notify before 30 September", Hills said.
"With HMRC about to get CRS disclosures about financial accounts held by UK taxpayers in around 100 countries, including major financial centres such as Singapore, Switzerland, Hong Kong, Dubai, the chances of HMRC finding out about undeclared assets are greater now than ever before," she said.
The Common Reporting Standard (CRS) is an international measure whereby countries automatically exchange tax information about financial accounts held by non-residents. The first exchanges were made by early adopter countries in 2017, but 2018 sees exchanges being made for the first time by late adopter countries.
"Those who fail to correct face stringent financial penalties and in the most serious of cases, the prospect of a criminal prosecution," Josie Hills said.