Failure to correct penalties for offshore tax

Q: When is no failure to correct penalty due?

A full correction by the deadline. Paragraph 13 allowed correction by filing or amending a return, using the digital disclosure service, telling an officer during an enquiry or a method agreed with HMRC. Those cases are penalised under the normal regimes instead, such as Schedule 24 to the Finance Act 2007 for inaccuracies. HMRC already held the information by 30 September 2018, according to HMRC's factsheet CC/FS17. 2016 to 2017 and later years. These were never within the requirement and fall under the ordinary offshore penalty categories. Reasonable excuse for the failure to correct (paragraph 23), considered below. Double jeopardy. Under paragraph 24, conduct that led to a criminal conviction, or to another assessed penalty that still stands (including the 12 month late filing penalty in paragraph 6 of Schedule 55 to the Finance Act 2009), cannot also give rise to a failure to correct penalty. Death before 1 October 2018. HMRC's additional guidance says such a person could not be liable, and personal representatives are not penalised for the deceased's failure.

Q: How does it work in practice?

Illustration only. Sara had an account in Switzerland and never declared the interest. The offshore tax for the tax years 2012 to 2013 through to 2015 to 2016 totals £20,000. HMRC writes to her in 2026 after receiving data about the account, so her disclosure is non voluntary and the range is 150% to 200%. She answers every question and supplies statements promptly, and HMRC allows 60% for quality of disclosure. The reduction is 60% of the 50 point gap, or 30 points, giving 170% and a penalty of £34,000 on top of the £20,000 tax and interest. Had she come forward unprompted with the same quality of disclosure, the range would have been 100% to 200% and the penalty 140%, or £28,000.

The failure to correct penalty applies to offshore income tax, capital gains tax and inheritance tax non compliance from 2015 to 2016 or earlier that was not disclosed to HMRC by 30 September 2018. It starts at 200% of the offshore tax and can be reduced for the quality of disclosure, but only to 100% if you come forward voluntarily or 150% if HMRC finds you first. Behaviour and the territory involved make no difference to the rate.

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Where does the penalty come from?

Schedule 18 to the Finance (No. 2) Act 2017 created the requirement to correct. Anyone who had “relevant offshore tax non compliance” at the end of the 2016 to 2017 tax year had to correct it in the period from 6 April 2017 to 30 September 2018, which the Schedule calls the RTC period. Paragraph 1 makes a penalty payable by anyone who failed to do so. HMRC’s guidance is in its Compliance Handbook from CH123050, supplemented by additional guidance published in September 2022.

The tax covered is income tax, capital gains tax and inheritance tax. HMRC’s additional guidance confirms that Class 2 and Class 4 National Insurance contributions are also in scope, because the contributions legislation treats them as income tax.

What counted as relevant offshore tax non compliance?

Paragraph 8 lists three kinds of tax non compliance: failing to notify chargeability under section 7 of the Taxes Management Act 1970, failing to deliver a return or other listed document, and delivering a document containing an inaccuracy that understates tax or inflates a loss or repayment claim. It is offshore if it involves an offshore matter (income from a source abroad, assets situated or held abroad, or activities carried on wholly or mainly abroad) or an offshore transfer, such as UK income received abroad or moved abroad by 5 April 2017.

Three conditions in paragraphs 3 to 6 then had to be met:

Condition A: the non compliance was committed on or before 5 April 2017 and had not been fully corrected by then. HMRC’s additional guidance says this makes 2015 to 2016 the latest tax year in scope.
Condition B: it involved a potential loss of revenue.
Condition C: on 6 April 2017 (for inheritance tax, the day after the Act was passed) HMRC could still lawfully have assessed the tax if it had known about it.

Behaviour does not matter. A careless omission of foreign interest was caught as much as deliberate evasion, provided the year was still open on 6 April 2017. A partial correction only takes the corrected part out; the rest remains relevant offshore tax non compliance.

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When is no failure to correct penalty due?

A full correction by the deadline. Paragraph 13 allowed correction by filing or amending a return, using the digital disclosure service, telling an officer during an enquiry or a method agreed with HMRC. Those cases are penalised under the normal regimes instead, such as Schedule 24 to the Finance Act 2007 for inaccuracies.
HMRC already held the information by 30 September 2018, according to HMRC’s factsheet CC/FS17.
2016 to 2017 and later years. These were never within the requirement and fall under the ordinary offshore penalty categories.
Reasonable excuse for the failure to correct (paragraph 23), considered below.
Double jeopardy. Under paragraph 24, conduct that led to a criminal conviction, or to another assessed penalty that still stands (including the 12 month late filing penalty in paragraph 6 of Schedule 55 to the Finance Act 2009), cannot also give rise to a failure to correct penalty.
Death before 1 October 2018. HMRC’s additional guidance says such a person could not be liable, and personal representatives are not penalised for the deceased’s failure.

How is the penalty calculated?

Paragraph 14 sets the penalty at 200% of the offshore potential lost revenue (PLR) attributable to the uncorrected non compliance. The PLR uses the rules of the regime that would otherwise apply: Schedule 41 to the Finance Act 2008 for failure to notify, Schedule 55 to the Finance Act 2009 for missing returns and Schedule 24 to the Finance Act 2007 for inaccuracies, with older Taxes Management Act provisions for older years. Where a single error mixes offshore and UK elements, only a just and reasonable share of the PLR counts. Our page on potential lost revenue explains how the base is measured.

Paragraph 16 requires HMRC to reduce the penalty for disclosure: telling HMRC, giving reasonable help, naming anyone who acted as an enabler, and giving access to records. The statute sets a floor of 100%. CC/FS17 and CH123405 set the floors used in practice:

Disclosure	Standard	Minimum
Voluntary (no reason to believe HMRC had found it or was about to)	200% of PLR	100% of PLR
Non voluntary (after HMRC contact)	200% of PLR	150% of PLR

HMRC weights the quality of disclosure 30% for telling, 40% for helping and 30% for giving access (CH123407). CH123406 says a disclosure is non voluntary once HMRC has received automatic exchange information that would reveal the issue, unless the person had no reason to believe it had been supplied. Special reduction is available under paragraph 17, but not for inability to pay. HMRC can also publish the details of a person who knew about the non compliance during the RTC period where the offshore PLR exceeds £25,000 or there are five or more such penalties, unless the penalty was reduced to the 100% minimum (paragraph 30).

How does it work in practice?

Illustration only. Sara had an account in Switzerland and never declared the interest. The offshore tax for the tax years 2012 to 2013 through to 2015 to 2016 totals £20,000. HMRC writes to her in 2026 after receiving data about the account, so her disclosure is non voluntary and the range is 150% to 200%. She answers every question and supplies statements promptly, and HMRC allows 60% for quality of disclosure. The reduction is 60% of the 50 point gap, or 30 points, giving 170% and a penalty of £34,000 on top of the £20,000 tax and interest. Had she come forward unprompted with the same quality of disclosure, the range would have been 100% to 200% and the penalty 140%, or £28,000.

Can reasonable excuse or advice defeat the penalty?

Liability does not arise if the person satisfies HMRC or the tribunal that there was a reasonable excuse for not correcting during the RTC period. Paragraph 23 rules out insufficiency of funds (unless caused by events outside the person’s control) and reliance on someone else unless the person took reasonable care. Reliance on advice cannot count if the advice is “disqualified”: given by or arranged through an interested person in avoidance arrangements, given by someone without appropriate expertise, ignoring the person’s individual circumstances, or addressed to someone else. CH123300 says HMRC accepts that members of a UK recognised legal, accounting or tax advisory body have the appropriate expertise.

HMRC’s additional guidance stresses that an excuse for the failure to correct is separate from any excuse for the original error, and that an excuse based solely on not knowing about the requirement is unlikely to be accepted. See our guide to reasonable excuse for the general principles.

Why is this still relevant in 2026?

The extended assessment window in paragraph 26 expired on 5 April 2021. HMRC’s additional guidance says the normal Taxes Management Act limits now decide whether a pre 2016 to 2017 year can be assessed, and if it can, a failure to correct penalty should be considered. Two limits keep RTC years open:

Section 36(1A) allows 20 years where the loss was brought about deliberately or by a failure to notify under section 7. On that basis 2006 to 2007, the earliest year still in time, can be assessed until 5 April 2027.
Section 36A allows 12 years for an offshore matter. Section 80 of the Finance Act 2019 applies it from 2013 to 2014 for careless losses and from 2015 to 2016 in other cases, so 2014 to 2015 stays open until 5 April 2027 and 2015 to 2016 until 5 April 2028, subject to the exception where HMRC already held overseas information in time. Our page on the 12 year offshore time limit covers this.

The penalty assessment itself follows the tax: paragraph 19 allows 12 months from the end of the appeal period for the tax assessment or, where there is none, from when the tax is ascertained or the inaccuracy corrected.

What other penalties can come with it?

Where the person knew during the RTC period that there was something to correct, an asset based penalty of up to 10% of the asset’s value can be added if the offshore PLR exceeds £25,000 in a tax year, and an offshore asset moves penalty of 50% of the failure to correct penalty applies if assets were moved to avoid detection. You can appeal against both the decision that a failure to correct penalty is payable and its amount, and you do not have to pay the penalty before the appeal is decided (paragraphs 20 and 21).

What mistakes do people make?

Assuming a careless error escapes. The rate ignores behaviour, though behaviour still decides how far back HMRC can assess.
Using the category 1, 2 and 3 tables in CC/FS17 for RTC years. Territory categories do not apply.
Waiting. Once HMRC holds exchanged data, the floor rises from 100% to 150%. The Worldwide Disclosure Facility remains the route for coming forward.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.