As you will be aware, there is increasing pressure on trustees to provide tax transparency in relation to their trusts. In an attempt to further expose non-compliance, the UK government requires any undisclosed offshore tax liabilities to be corrected by 30 September 2018. This is the Requirement to Correct (RTC) and it applies to income tax, capital gains tax and inheritance tax liabilities which arose in any and all tax periods up to and including 5 April 2017.
Any outstanding non-compliance from 30 September 2018 will fall into the Failure to Correct (FTC) regime. The penalties imposed under the FTC regime are severe: between 100% and 200% of the uncorrected tax liability could be payable to HMRC. HMRC may also impose an additional penalty of up to 10% of the value of the asset involved and/or identify the offending tax payer on a public website. Innocent errors, oversights and deliberate defaults will all fall within the FTC regime.
It is worth highlighting that the RTC does not only affect UK residents. Rather, anyone with a UK tax liability is subject to the requirement. This includes, for example, offshore trusts that receive income from UK property. Therefore, offshore trustees whose trusts hold assets in the UK, receive income from the UK or benefit from any transfers or activities carried on in the UK should thoroughly re-examine their tax compliance in advance of the deadline. This health check is especially important as there is a defence to the FTC penalties of having taken 'reasonable care' to identify and correct any non-compliance during the RTC window (i.e. between 7 April 2017 and 30 September 2018).
The defence is very narrowly drawn and any re-examination should be clearly documented. If the review highlights any technical areas where the tax position is not clear and there is a risk that HMRC could take a different view, HMRC's opinion should be sought as soon as possible. Similarly, any irregularities that have arisen as a consequence of changes in the law must be corrected as a matter of urgency.