Offshore matters or transfers, disclosure for UK tax and the new failure to correct penalty from 1 October 2018

Following my blog "UK tax compliance and HMRC Campaigns", I am focusing here on offshore involvements and UK tax. 

If you have, or have had involvements offshore, are you happy that these affairs have been correctly disclosed and taxed in the UK?

There is a new legal requirement included at Section 67 and Schedule 18 of the Finance (No. 2) Act 2017 that creates an obligation for anyone who has undeclared UK tax liabilities involving offshore matters or transfers to disclose the relevant information about this non-compliance to HM Revenue and Customs (HMRC) by 30 September 2018.

Failure to disclose the relevant information to HMRC on or before 30 September 2018 will result in the person becoming liable to a new penalty as a result of their failure to correct (FTC). The new FTC penalty is likely to be much higher than the existing penalties, with a minimum penalty of 100% of the tax involved.

To avoid becoming liable to these new higher penalties, a person must correct the position by no later than 30 September 2018. If they do this, the tax and interest will be collected and the existing penalty rules will apply.

HMRC has previously run campaigns specifically aimed at tax payers with overseas affairs who may not have made correct disclosure and/or paid enough tax in the UK. These campaigns are now over, but anybody wanting to make a tax disclosure voluntarily about any area of UK tax can still make a disclosure by using the Campaign Voluntary Disclosure Helpline on 0300 123 1078 - Monday to Friday, 8 am to 6:30 pm.

If taxpayers are unsure whether they have undeclared UK tax liabilities that involve offshore matters or transfers, they should check their affairs and if necessary put things right before they become liable to the new FTC penalties that will come into force on 1 October 2018.

Further guidance on this is available from HMRC here

UK tax compliance and HMRC Campaigns

The tax gap is the difference between the estimate of the tax that should be paid and the amount actually paid.

A 2014 report commissioned by the Public and Commercial Services Union estimated that the UK‟s tax gap was £122 billion a year and growing. This was a big increase on the 2010 estimate of £95 billion. 

In an attempt to reduce this gap, HM Revenue & Customs ("HMRC") runs campaigns that are designed to:

• help people to bring their tax affairs up to date
• help them keep them that way, and
• help stop them getting it wrong in the first place.

These campaigns do the following;

• provide opportunities that make it easier to be compliant – including offering an incentive to self-correct
• bring together a basket of activities to encourage voluntary compliance in the target population
• look for opportunities to inform customers who are entering the targeted risk area for the first time
• use what is learned to help HMRC improve processes to deal more efficiently with customers in the future.

These campaigns offer people a chance to get their tax affairs in order on the best possible terms. They provide tools and information to help people do that; to help people keep their affairs in order; and to help stop people getting it wrong in the first place.

Where people choose not to take the chance to set the record straight, HMRC uses the information, gathered before and during the campaign, to conduct follow-up work. This includes investigations and prosecutions.

The current campaigns relate to:

• Credit and debit card sales,
• Second Income,and 
• Let Property.

Anybody wanting to make a tax disclosure voluntarily about any area of UK tax can still make a disclosure by using the Campaign Voluntary Disclosure Helpline on 0300 123 1078 - Monday to Friday, 8 am to 6:30 pm.

The Child Benefit Charge Trap

As it stands, tens of thousands of people, mostly mothers will be missing out on all or part of their future state pension payments and it is estimated that this number is growing by about 20,000 every year.

The amount of state pension to which we are each entitled is based on the number of years of national insurance contributions. One of the advantages of child benefit payments is that they provided national insurance credits adding to the future state pension entitlement for the stay at home parent.

The High Income Child Benefit Charge ("HICBC") was introduced in January 2013 and has had a big impact on families and their decision not to claim child benefit. 

Under HICBC, if either partner has an income over £50,000, the tax charge will reduce and over £60,000 will wipe out any benefit. The benefit is payable to the lower earner but the tax is bourne by the higher earner.

Since the introduction of HICBC, many families are deciding that they will not clam child benefit and many new families do not submit a claim. This is where the problem lies.

For stay at home parents, usually mothers, registering to claim child benefit provides a National Insurance credit. The number of years that a parent stays at home varies from family to family, but is typically many years and can make a sizable impact on pension entitlement. 

This impact on pension entitlement should be considered when deciding whether or not to claim child benefit.

More importantly, new families must make a child benefit claim.  

Having made a claim, it is still possible to decide not get the payments, but it does ensure;

• national insurance credits that count towards the state pension, and
• the child being registered and issued with a National Insurance number when they turn 16.