Update. HMRC’s Agent Update 64 calls upon accountants and tax advisors to check whether any of their clients need to make a disclosure under the requirement to correct (RTC) initiative in order to avoid harsh penalties.

RTC is effectively an amnesty period, running until 30 September 2018, during which clients can make a disclosure of previously undeclared (or underdeclared) taxable sources of income, gains or inheritances. If a disclosure is made after that date, of if HMRC discovers the source and raises an assessment, the associated penalty will be a minimum of 100% of the underpaid tax, but could be as high as 200%.

Evasion vs. Error. The initiative is clearly aimed at deliberate tax evasion, but there is no minimum cut-off point, so even underpaid tax due to error or oversight needs to be looked at. As an example, consider the situation where one of your UK resident clients has inherited an overseas property jointly with their sibling. The sibling lives in the country where the property is located, and decides to let it out. Your client does not receive any of the income as they don’t need it. However, strictly speaking they should be declaring 50% of the profits on their tax return. Similarly, this could happen with interest-bearing bank accounts etc.

Summary

If your clients have previously undeclared income or gains, there is an amnesty to declare these by 30 September 2018. After that, a minimum penalty of 100% will apply - even if the underpayment wasn’t deliberate.