UK: U.K. Requirement To Correct

Last Updated: 7 August 2018
Article by Gary Ashford

The "Requirement to Correct" ("R.T.C.") rules became law when the Finance (No. 2) Act 2017 received Royal Assent on November 16, 2017. The legislation required taxpayers who were noncompliant as of April 5, 2017, with regard to offshore tax affairs, to correct the relevant noncompliance by September 30, 2018. The deadline corresponds to the final date for over 100 jurisdictions who have signed up to exchange data on financial accounts information. Under the Model for Automatic Exchange of Financial Account Information in Tax Matters (Common Reporting Standard ("C.R.S.")), H.M.R.C. will have more access to personal financial information about offshore assets held than ever before.

Under the initial legislation, failure to correct by September 30, 2018, would result in a 200% penalty being applied, plus a potential penalty of 10% of the value of the associated asset. Subsequent to government consultation, H.M.R.C. has published updated guidance, which includes a much-welcomed relaxation to the penalties where (i) ahead of the September 30, 2018, deadline, H.M.R.C. has been notified that a disclosure will be made, and (ii) the disclosure is made ahead of the associated deadline for the particular disclosure route taken. The final date is December 29, 2018. Given the significant liability, not to mention the scrutiny and administration costs, it is vital to review historic U.K. tax compliance in advance of this date.


The definition of offshore noncompliance is far-reaching and relates to any compliance matter where tax is owed to H.M.R.C. as a result of tax noncompliance where there is an offshore connection.


The R.T.C. applies to any person with potential undisclosed U.K. income tax, capital gains tax, and/or inheritance tax liabilities.

"Persons" refers to the following:

  • Individuals
  • Partnerships
  • Trustees
  • Nonresident landlord individuals/companies


The standard penalty is 200% of the tax liability but can be reduced according to factors such as cooperation and quality of the disclosure to H.M.R.C. However, the minimum penalty is 100% of the tax liability. Where, after the deadline, H.M.R.C. opens an enquiry ahead of any disclosure, the penalty cannot be less than 150%.

Where H.M.R.C. believes that the person was aware of the tax noncompliance and failed to correct by the deadline, they can apply an additional penalty to the standard penalty and seek up to 10% of the value of the assets linked to the offshore noncompliance.

There is also potentially a further penalty of 50% if it can be shown that assets were intentionally moved to avoid, for example, an overseas bank reporting the account to H.M.R.C.

In serious cases, which involve over £25,000 in tax any tax year, H.M.R.C. may cause reputational damage by publishing the taxpayer's details on a public website.


Penalties will be chargeable for failure to correct, unless the taxpayer can demonstrate a "reasonable excuse" existed for not meeting the obligation. The definition of a "reasonable excuse" is very narrow. The legislation makes it clear that a reasonable excuse cannot be based on tax advice received from an "interested person." Such advice will not be accepted and will instead be treated as "disqualified" advice.

If the taxpayer fails to make a correction but has a reasonable excuse for not doing so, a penalty will not be imposed, and an obligation will exist to pay the tax owed and accompanying interest.


  • Advice given to the taxpayer by an interested person
  • Advice given to the taxpayer as a result of arrangements made between an interested person and the person giving the advice
  • Advice given by an advisor who does not have appropriate expertise in the matter
  • Advice which does not consider all of the person's individual circumstances
  • Advice that is addressed to, or is given to, a person other than the taxpayer


An interested person is someone who has participated in the "avoidance arrangement or has received consideration for implementing or facilitating entry into a tax avoidance arrangement."

An interested person includes the following:

  • A body of persons both corporate or unincorporated
  • Limited companies
  • Accounting firms
  • Limited liability partnerships

H.M.R.C. guidance on the R.T.C. provides examples of disqualified advice.

Example 1

Trustees of an offshore trust obtain advice from an accountancy firm on how best to distribute funds to U.K. and non-U.K. beneficiaries. The firm specializes in giving this advice. After considering the trust and the beneficiaries' circumstances, the accountant advises the trustees on how to make distributions in a way that they minimize their tax position.

Some years later, H.M.R.C. challenges the trustees and the beneficiaries for not paying enough tax on the distributions and for failure to correct.

As the advice was given by an interested person (a firm of accountants) and concerned "avoidance arrangements," it is treated as disqualified advice and cannot be used as a reasonable excuse.

Example 2

The facts are the same as in Example 1, however, in this scenario, the trustees later undertook a secondary and independent review from a person with the appropriate expertise who was not involved in facilitating the original arrangements. Provided that the trustees followed the advice given and it took into account the trustees' and beneficiaries' circumstances, then it can be relied on as a reasonable excuse if the trustees fail to make a correction.

The trustees in Example 1 sought advice in good faith. However, the R.T.C. legislation clearly seeks to disregard advice given by professional advisors paid to do so, and an independent review from a peer, as in Example 2, is necessary to ensure the advice is not considered as disqualified advice.


A correction can be made by refiling tax documents (e.g., a self-assessment tax return). Consideration should be given to using the Worldwide Disclosure Facility ("W.D.F.") or the Contractual Disclosure Facility ("C.D.F."). The latter should be used in cases where the noncompliance results from deliberate behavior.

For taxpayers who are not confident that their offshore affairs are tax complaint, a review should be carried out to assess their tax position by someone whose advice will not be disqualified, and then a disclosure should be made, if appropriate.

As stated above, it is important to take the initiative and file a disclosure, or notify H.M.R.C. of the intention to file, before September 30, 2018. If a tax enquiry is already underway, the disclosure must be made within 60 days. If using the W.D.F., the disclosure should be made within 90 days. If using the C.D.F., the disclosure should be made within 60 days (i.e., the Outline Disclosure deadline).

If there are concerns that H.M.R.C. could successfully dispute a historical tax position, it may be prudent to lodge a "protective" disclosure regarding the potential noncompliance.


Under "normal" tax rules, H.M.R.C. has the following time limits to make an assessment:

  • Four years in circumstances of reasonable care
  • Six years in circumstances of careless behavior
  • 20 years in circumstances of deliberate behavior

For the purposes of R.T.C., however, the "normal" H.M.R.C. time limits have been extended retroactively by four years. This means that up until April 5, 2021, a person who has failed to correct can still be investigated by H.M.R.C. as follows:

  • For assessments not involving careless or deliberate behavior,
  • H.M.R.C. can still go back to 2013-14.
  • For assessments including careless behavior, H.M.R.C. can still go back
  • to 2011-12.
  • For assessments involving deliberate behavior, H.M.R.C. can still go back to 1997-98.


Given the scale of R.T.C. penalties, doing nothing is no longer a viable option where a history of noncompliance exists. A number of options can be taken to regularize the taxpayer's position and avoid penalties, depending on the exact circumstances.

Counsel can assist in analyzing the taxpayer's position and recommend the most appropriate course of action, by taking the following steps:

  • Review the historic tax position.
  • Perform a tax health check.
  • Review any existing advice from previous advisors.
  • Where appropriate, assist in making a disclosure to H.M.R.C. or correcting offshore noncompliance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Mishcon de Reya
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Mishcon de Reya
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions