07 August 2018

What is the Requirement to Correct?

In our article Last Chance Saloon: the new “Requirement to Correct” offshore tax matters, we wrote about how, if your affairs involve income or assets outside the UK and your UK tax filings up to 5 April 2017 in relation to these offshore matters are not 100% perfect then, from 30 September 2018, you face stringent new penalties of up to 200% of the tax due. In the most serious cases the penalty can increase to 300%, together with a further penalty of 10% of the assets in question and potential naming and shaming by HMRC.

This "Requirement To Correct" reflects the fact that other jurisdictions are automatically providing HMRC with details of the offshore income and assets of UK residents. HMRC is using information provided by the U.S. Internal Revenue Service to write to taxpayers who have income and gains in the US. We have seen a copy of the draft letter HMRC is proposing to send out, in which the addressee is given one last chance to come forward and correct any historic tax labilities. Failure to do so by 30 September 2018 can attract severe penalties.

What should you do if you receive a letter?

If you receive such a letter you would be justified in feeling alarmed. However, you should have nothing to fear if you have declared all your US income and gains in the UK, or if you have claimed the remittance basis of taxation and kept your US income and gains out of the UK. In any case, you would be well advised to review your affairs to ensure that everything is in order.

Unfortunately, there is a common misconception among US citizens that if they pay tax in the US, they do not have to declare or pay tax elsewhere. This is not the case: US citizens who are resident in the UK (and do not claim the remittance basis) are required to declare their US (and other) income and gains in the UK. Frequently there is additional UK tax to pay on top of the US tax, although credit can be claimed for tax paid in the UK. In some cases tax should be paid in the UK and credit claimed in the US.

It should be noted that this does not just apply to US citizens. However, the unique nature of the US tax system which taxes citizens regardless of where they live in the world leads many people – including US advisors – to believe mistakenly that the US has sole taxing rights over its citizens.

How can Burges Salmon help?

If you are concerned that you may have any offshore income or gains – in the US or elsewhere – which you should have declared in the UK, please get in touch with us and we would be delighted to help you put your affairs in order.

Key contact

Headshot John Barnett

John Barnett Partner

  • Head of Partnerships
  • Private Client Services
  • Tax

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