The Worldwide Disclosure Facility (WDF) runs from 5 September 2016 to 30 September 2018. It is designed to enable taxpayers to disclose a UK tax liability which relates wholly or partly to an offshore issue.
All other offshore disclosure facilities have now closed and this is the final opportunity for UK taxpayers to come forward before the Common Reporting Standard (“CRS”) information exchange begins.
The CRS is an automatic mechanism for information sharing between tax authorities, designed by the OECD. So far over 100 countries have agreed to participate. CRS means that tax authorities will provide their counterparts in other jurisdictions with information regarding the beneficial owners of companies and trusts.
HMRC acknowledges that taxpayers’ affairs may be non-compliant for a variety of reasons, not just deliberate evasion. For example, advice received may have been incorrect or may be out of date. For this reason, taxpayers are urged to take reliable, up to date advice to ensure that their affairs are in order.
The WDF is open to individuals with unpaid or omitted tax in respect of:
- income arising from a source in a territory outside the UK;
- assets situated or held in a territory outside the UK;
- activities carried on wholly or mainly in a territory outside the UK;
- anything having an effect as if it were income, assets or activities of a kind described above; and
- funds connected to unpaid or omitted UK tax not included above which have been transferred to a territory outside the UK or are owned in a territory outside the UK.
We recommend that professional advice is taken before the process commences. The first step is to notify HMRC via the digital disclosure service, following which a disclosure reference number (“DRN”) will be issued. Following notification a taxpayer has 90 days to gather information, calculate liabilities and make the disclosure using the DRN.
The timing of the notification must therefore be considered carefully as the short timeframe may not be sufficient to gather information relating to complex cases from a variety of sources, but equally a delay in notification carries the risk that HMRC might open an enquiry, which would remove any reduction in penalties for an unprompted disclosure.
The taxpayer must self-assess his or her behaviour and this self-assessment process then specifies the number of years of information which must be disclosed. The disclosure facility provides a number of options from which to select and a variety of scenarios including failure to submit a return, submitting an inaccurate return, or failing to notify HMRC of a tax liability.
The maximum value of overseas assets held at any time in the last 5 years must be disclosed and the taxpayer must also tell HMRC if (s)he has reduced the amount of the disclosure following consideration and interpretation of the law.
HMRC will acknowledge the disclosure within 15 days and aim to inform the taxpayer of the required course of action within 40 days.
An Option for Advance Clearance
HMRC have provided the opportunity to seek advance clearance on complex issues via the non-statutory clearance process. This is a departure from previous disclosure opportunities.
There are no favourable terms and the taxpayer must calculate all fines, penalties and interest due. The level of penalty depends on the territory in which the income or gains arose, whether the error which led to the underpayment was careless, deliberate or deliberate and concealed, and the length of time taken to correct non-compliance. There is no immunity from prosecution or naming and shaming of deliberate defaulters.
Although no reduction to penalties is available, as an inducement to use the WDF, HMRC plans to introduce tougher sanctions from September 2018 to deal with taxpayers who continue to be non-compliant after WDF closes. HMRC’s view is that due to CRS it will be much more difficult for taxpayers to conceal money and assets in other jurisdictions
A new penalty for failure to correct (“FTC”) was initially included in Finance Bill 2017 as part of the Requirement to Correct legislation, meaning that taxpayers who did not put their affairs in order by 30 September 2018 would have committed a further offence in addition to their non-compliance and would therefore be liable to additional penalties. However this legislation was removed from the Finance Bill following the announcement of a UK General Election and will now be revisited by the next Government.
It is a condition of the WDF that individuals must pay the full amount of tax, penalties and interest due. Full payment must be made on the same date that the disclosure is made: if the taxpayer cannot pay the amount due s(he) must contact HMRC to agree payment arrangements before making the disclosure.
Voluntary Disclosure Opportunity (“VDO”)
The VDO was also announced on 5 September 2016. This enables individuals who are not eligible for other campaigns, such as the WDF, to make a disclosure, following the same procedure detailed above.
Summary and Additional Information
All UK taxpayers with offshore source income or gains should review their affairs and take advice immediately to determine whether they have unpaid tax which should be disclosed via WDF.
If you require any additional information on this topic, please contact your usual Dixcart adviser or speak to Paul Webb or Sarah Gardner in the UK office: firstname.lastname@example.org.