Offshore tax evasion and non-compliance: the requirement to correct and failure to correct

This article was first published in by UK200Group in TaxTalk.

HMRC continues their assault on the offshore market by introducing new legislation surrounding a Requirement to Correct (RTC) and Failure to Correct (FTC) penalties.

The new legislation will apply to anyone with historic UK tax liabilities relating to overseas assets.

Interestingly and more importantly, the legislation applies to those who have deliberately evaded tax and also to those who have not taken reasonable care.

The legislation contained within the Draft Finance Bill 2017 introduces a new obligation for taxpayers to ensure that undeclared UK tax liabilities (income tax, capital gains tax and inheritance tax) in respect of offshore interests relating to all periods up to and including 5 April 2017 are fully disclosed to HMRC before 30 September 2018.

The importance of the end date of 30 September 2018 is that this corresponds with the date by which all countries who have committed to the OECD’s Common Reporting Standard (CRS), will be exchanging data with HMRC.

Taxpayers who fail to correct historic errors in the “RTC period” (6 April 2017 to 30 September 2018) will have to face up to a new severe penalty regime for their FTC. In certain circumstances this could include an asset based penalty.

The new FTC penalties include:

  • A standard penalty of between 100% and 200% of the tax that has not been corrected
  • A 10% asset-based penalty (relevant to ‘the most serious cases’ where tax underpaid in a tax year is greater than £25,000)
  • An enhanced penalty of 50% of the standard penalty amount if HMRC could show that assets or funds had been moved to attempt to avoid RTC
  • Naming and shaming of taxpayers ‘in the most serious cases’ (total loss of tax greater than £25,000)

Representations against FTC penalties will effectively be limited to the rules surrounding “reasonable excuse”. The draft legislation clarifies in which circumstances taxpayers can and cannot rely on tax advice they have received, as a reasonable excuse for not having corrected their tax affairs during the RTC period.

Taxpayers will be able to amend and make corrections by submitting outstanding tax returns, providing information to HMRC when under investigation, or by utilising the currently available disclosure facilities – the Contractual Disclosure Facility (CDF) or the Worldwide Disclosure Facility (WDF).

Readers may be a little confused as to why HMRC are bringing in new legislation surrounding the offshore market, when a few years ago they brought in a new offshore penalty regime. The reason behind this piece of legislation is that the new FTC penalties are not in respect of the behaviour that led to the original non-compliance, as with standard penalties, but instead they relate to the person’s failure to take steps to correct that non-compliance within the RTC period.

It is therefore important that individuals review their tax affairs to ensure that they are up to date and where irregularities arise to disclose these to HMRC as soon as possible and certainly before 30 September 2018.

For more information, please contact us.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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