CH123300 - Offshore matters: requirement to correct certain offshore tax non-compliance: failure to correct - circumstances when a penalty is not due
You must check the date from which these rules apply for the tax or duty you are dealing with. See CH123050 for full details.
Reasonable excuse
A penalty will not arise for a failure to correct offshore tax non-compliance where the person satisfies HMRC or the relevant tribunal that they have a reasonable excuse for the failure.
What is a reasonable excuse for the purposes of RTC?
The RTC legislation states that the following circumstances cannot be a reasonable excuse.
- Where there is an insufficiency of funds, unless this is attributable to events outside the person’s control.
- Where the person ‘P’ relied on any other person to do something, unless they themselves took reasonable care to avoid the failure.
- Where the person had a reasonable excuse but the excuse has ceased. They will only be treated as continuing to have a reasonable excuse if they remedy the failure without unreasonable delay after the excuse ceased.
- Reliance on advice, that is ‘Disqualified advice’ (see below).
Disqualified advice
Advice is disqualified advice if
- the advice was given to the person ‘P’ by an ‘interested person’ (see below),
- the advice was given to the person ‘P’ as a result of arrangements made between an interested person and the person who gave the advice,
- the person who gave the advice did not have appropriate expertise for giving the advice,
- the advice failed to take account of all the person’s ‘P’s individual circumstances (so far as relevant to the matters to which the advice relates), or
- the advice was addressed to, or was given to, a person other than the taxpayer.
HMRC will accept that anyone who is a member of a UK recognised legal, accounting, or tax advisory body will have the appropriate expertise to give advice on UK tax matters.
Where advice would be disqualified under any of (1) to (4) above, that advice is not disqualified if at the end of the RTC period the person ‘P’
- has taken reasonable steps to find out whether or not the advice falls within any of the above criteria, and
- reasonably believes that it does not.
Individual circumstances
Advice must recognise a person’s individual circumstances and not be generic advice offered to everybody. For example, you should consider whether the advice only analyses the legislation and shows no consideration of how the arrangement will affect the individual circumstances and whether specific aspects of the person’s tax affairs have been considered in the details of the advice.
You should also check that advice that was given before the transactions took place does take account of all of the person’s relevant circumstances.
If the person has relied on advice that was given before the transactions took place and the transactions then took place in a slightly different way and that slight difference means tax is due, you should contend that the advice failed to take account of all of the relevant circumstances and is disqualified.
Reasonable steps
When considering if the person took reasonable steps to identify if the advice being given would be disqualified, you must take into account the individual’s abilities and circumstances. We would expect the person to have undertaken basic checks, such as
- researching the advisor
- checking their web-sites
- obtaining the view of a trusted independent person, such as a tax professional
- asking about the qualifications or experience of the advisor.
Interested persons – definition
An interested person is someone, other than the person ‘P’, who either
- participated in relevant avoidance arrangements or any transaction forming part of them, or
- who received any consideration, whether or not in the form of money’ for facilitating the person ‘P’s entering into ‘relevant avoidance arrangements’ (see below).
Definition of relevant avoidance arrangements
Arrangements includes any agreement that in all circumstances would be reasonable to conclude that their main purpose, or one of their main purposes, is the obtaining of a tax advantage.
Where any relevant offshore tax non-compliance arose originally because information was submitted to HMRC on the basis that particular avoidance arrangements had an effect which they did not have, those avoidance arrangements are ‘relevant avoidance arrangements’ in relation to that tax non-compliance.
This is a wide definition and will encompass most circumstances in which a tax advantage arises.
Exceptions
Arrangements are not avoidance arrangements if they accord with established practice, and HMRC had, at the time the arrangements were entered into, indicated its acceptance of that practice.
Definition of a tax advantage
Tax advantage is defined as
- relief or increased relief from tax,
- repayment or increased repayment of tax,
- avoidance or reduction of a charge to tax or an assessment to tax,
- avoidance of a possible assessment to tax,
- deferral of a payment of tax or advancement of a repayment of tax.