Guidance

Additional requirement to correct guidance

Published 7 September 2022

The original deadline for the requirement to correct was 30 September 2018. It is now too late to make a compliant correction under the requirement.

Any taxpayer who has undeclared tax (inside or outside of the UK) should still come forward and disclose this to HMRC at the earliest opportunity. It will always be in the taxpayer’s best interests to come forward rather than to wait for HMRC to discover undeclared tax.

Disclosures can be made through the Digital Disclosure Service, which includes the Worldwide Disclosure Facility for undeclared tax on non-UK income or assets.

In certain cases, when the criteria are met, disclosures can be made through Code of Practice 9 (COP9), which allows them to be made when the conduct is deliberate. This is also known as the Contractual Disclosure Facility.

The deadline for the requirement to correct passed in September 2018, so much of the guidance (for example, concerning how to make a compliant correction) is no longer applicable. However, the guidance may still be relevant in some cases and so this additional guidance has been issued to clarify the following points.

The scope of the requirement to correct — National Insurance contributions

Class 4 National Insurance contributions are within the scope of the requirement to correct legislation because they are to be treated as Income Tax through the application of Section 16 of the Social Security Contributions and Benefits Act 1992.

Class 2 National Insurance contributions are within scope of the requirement to correct legislation through the application of Section 11A of the same act.

Those sections require Class 2 and Class 4 National Insurance contributions to be treated as if they are Income Tax in other legislation dealing with Income Tax.

Years covered by the requirement to correct

The requirement to correct legislation sets out that only tax non-compliance committed before 6 April 2017 is covered by the requirement. This means that the latest tax year that is within scope of the requirement to correct is the 2015 to 2016 tax year. The original guidance gives more detail on timing and time limits.

The extension of assessment time limits introduced as part of the requirement to correct legislation (in paragraph 26 of Schedule 18 to the Finance (No. 2) Act 2017) expired on 5 April 2021. To establish if a year is in date for assessment, the time limits in Taxes Management Act 1970 should be considered instead, taking into account the behaviour associated with the original non-compliance (read also CH50000).

Section 36A of Taxes Management Act 1970 sets a time limit of 12 years for non-deliberate offshore non-compliance (read CH53510).

If, as a result of the Taxes Management Act 1970 time limits, tax is assessable for a year which is within scope of the requirement to correct, then consideration should be given to the potential charging of failure to correct penalties.

The requirement to correct and the remittance basis

When the remittance basis charge becomes due as part of the tax consequences of offshore non-compliance, it may be part of the offshore potential loss of revenue for the purposes of working out failure to correct penalties. This continues to apply when the remittance basis is claimed retrospectively in response to an investigation which uncovers offshore non-compliance.

Residence, domicile and the remittance basis are complex areas and the exact position will depend on the facts in each case. Further guidance should be sought as needed.

Deceased taxpayers

The personal representatives and HMRC should deal with the deceased’s tax affairs in the usual way. If a taxpayer dies while their affairs are within the scope of the requirement to correct, any failure to correct penalty is unlikely to be applicable to the personal representatives.

In a case when the personal representatives themselves were responsible for the non-compliance and a failure to correct, then failure to correct penalties may be applicable. However, personal representatives will not be penalised for the deceased taxpayer’s failure to correct.

This is in line with HMRC’s existing guidance on the application of the Human Rights Act in such cases as set out in the Compliance Handbook at CH301150, which should be referred to in these cases.

Any taxpayer who died before 1 October 2018 could not be liable to failure to correct penalties.

Reasonable Excuse

The section on reasonable excuse within the original guidance focused on how the requirement to correct legislation applies reasonable excuse when considering the requirement. Nevertheless, decisions on reasonable excuse in all cases, including requirement to correct cases, should always take into account the wider guidance on reasonable excuse and existing case law. This wider guidance has recently been revised and can be found at CH160000. It sets out the principles of reasonable excuse and relevant case law.

A reasonable excuse for a failure to correct is separate from any reasonable excuse which may exist for the original non-compliance. The two may have some bearing on each other, but they should not be confused.

In requirement to correct cases, the question to consider is if the taxpayer had a reasonable excuse for failing to correct relevant offshore tax non-compliance before 1 October 2018.

The taxpayer will need to satisfy HMRC or the relevant tribunal that a reasonable excuse existed and that they made the correction without delay after the excuse ceased.

All decisions by HMRC should be based on the facts of the individual case. These should be viewed objectively before deciding if the facts are a reasonable excuse for the failure. HMRC may ask for evidence if this would help to establish the facts or to satisfy HMRC as to the existence of a reasonable excuse.

Reasonable excuse must be considered on its own merits and a person’s abilities, circumstances and experience must be taken into account. There are many different circumstances that may represent a reasonable excuse for a failure, and each case must be considered on its individual facts and circumstances.

The nature of the requirement to correct obligation means that a reasonable excuse which is based solely on a lack of awareness of the requirement is unlikely to be accepted.