In a climate where significant steps have been taken over the last few years to target tax evasion, the Worldwide Disclosure Facility (“WDF”) is considered the “last chance” for individuals to disclose any offshore tax non-compliance issues to HMRC before tougher new sanctions, including substantial financial penalties, broader powers of “naming and shaming” and increased risk of criminal investigations, are introduced as part of the Requirement to Correct (“RTC”).
The WDF opened on the 5th September 2016. Under the terms of the WDF, taxpayers using the facility must pay full tax, late payment interest and penalties due, as calculated under existing rule when making their disclosure. After the 30th September 2018, although taxpayers will still be able to make a disclosure to HMRC in the usual way, new tougher sanctions for their failure to correct any historic errors under the RTC will be introduced with less favourable terms of acceptance than those currently available under the WDF. These new terms include penalties of 100% of the tax due and potential criminal proceedings. Currently, penalties are calculated as a percentage of the tax due with reference to the taxpayer’s behaviour that resulted in their initial failure to report the tax.
Notably, the timing of the launch of the WDF coincided with the implementation of the Common Reporting Standard (“CRS”). In its simplest form, under the CRS, information from banks and registers of beneficial owners from around the world will be automatically exchanged, providing HMRC with vast amounts of offshore financial information from over 100 countries. From this information, it is likely cases for further investigation will be identified and formal enquiries opened into the tax affairs of individuals with offshore interests.
Who can use the WDF?
The WDF is available to anybody who wishes to disclose a UK tax liability that relates wholly or partly to an offshore interest. Individuals can make disclosures about their own non-compliance or their company’s tax affairs. The WDF also extends to disclosures relating to trusts, estates or limited liability partnerships and non-UK residents can take advantage of the WDF if they are aware of an outstanding UK tax liability.
How to make a disclosure under the WDF
The first step is to use the Digital Disclosure Service to notify HMRC of the intention to make a disclosure by giving basic personal details. On receipt of the notification, HMRC will send an acknowledgement letter that triggers a 90-day time limit to submit the full disclosure and make payment of the outstanding tax liability, penalties and interest as calculated as part of the disclosure process. If there are any other UK tax liabilities that remain outstanding relating to onshore issues, these must also be disclosed and accounted for under the WDF.
It is possible to extend the 90-day time limit by a further 90 days by using the non-statutory clearance process. However, HMRC has advised that clearances are only required to deal with complex issues and in exceptional circumstances.
HMRC will acknowledge receipt of disclosure within 15 days of submission and aims to notify the tax payer of the next steps within a further 40 days.
In many cases, HMRC will accept the WDF disclosure as submitted. However, HMRC reserves the right to request further information on the disclosure before reaching an acceptance or, if HMRC believes the disclosure is incomplete or inaccurate, they may notify the taxpayer of their intention to commence a further civil or criminal investigation in to the matter.
HMRC has ever growing avenues to identify and pursue those who do not pay the right amount of tax. In short, a disclosure, unprompted by HMRC, made under the WDF will receive more favourable consideration than a prompted disclosure made as part of an enquiry opened by HMRC. The WDF is a simple, and in HMRC terms, efficient process that, when used correctly, can provide closure and peace of mind in relation to any outstanding undisclosed tax issues. However, time is running out for taxpayers to come forward themselves to rectify their non-compliance before becoming the subject of an enquiry or tougher sanctions are introduced. If you have any concerns about your offshore tax affairs, it is important to take advice sooner rather than later to take full advantage of the WDF.
This note does not constitute legal advice but is intended as general guidance only. It is based on the law in force in September 2017.
This briefing was posted on 20 September 2017