Unfortunately, HMRC have now ceased to offer favourable terms for people who have not paid the right amount of tax in relation to wholly or partly offshore matters and state that they are toughening their approach to offshore non-compliance; utilising information provided by countries that have subscribed to exchange information under the Organisation for Economic Co-operation and Development Common Reporting Standard (‘CRS’).
However, the Worldwide Disclosure Facility (‘WDF’) is a ‘final chance’ for individuals who have offshore liabilities to come forward and bring their tax affairs up to date with HM Revenue & Customs (‘HMRC’) on relatively beneficial terms.
After 30 September 2018, much higher penalties and sanctions will apply under the ‘Requirement to Correct’ and HMRC warn that failing to disclose before this date could result in an increased risk of criminal investigation and being ‘named and shamed’ on the HMRC website. Therefore, HMRC are encouraging people to come forward before this date and make a full disclosure of all previously undisclosed UK tax liabilities under the WDF.
Anyone, including Non-UK Residents, can make a disclosure of UK tax relating to income, assets or activities located wholly or partly outside the UK. This can relate to an individual’s affairs, as well as limited companies, trusts, estates or limited liability partnerships. HMRC are not just targeting hardened tax evaders and convey that individuals who have not paid ‘the right amount of UK tax’, whether through innocent mistake, outdated advice or ignorance should come forward and use the WDF as long as their tax liability relates, wholly or partly, to an offshore matter.
However, if at any time HMRC knows or suspects that assets or funds included in the disclosure are wholly or partly made up of criminal property, they have the discretion to refuse WDF applications.
Individuals may choose to appoint a tax adviser to make a disclosure under the WDF on their behalf. Although the online WDF portal looks deceptively simple to use, there are many complexities that people may not be aware of such as the number of years to include, type of penalty to apply and tax legislation that might be relevant.
A person or their agent notifies HMRC of their intention to make a disclosure, which triggers HMRC to issue a ‘disclosure reference number’ and set a 90 day deadline within which the full disclosure must be submitted.
Within this timeframe, all of the relevant information must be collated and processed in order to complete and submit the disclosure to HMRC, including comprehensive tax and penalty calculations for all applicable years. Delaying the notification to HMRC only serves to increase the risk of HMRC discovering the unpaid liabilities in the meantime and would subsequently remove any ‘unprompted’ penalty reduction if HMRC issued an enquiry notice before a disclosure was made.
Upon submitting the disclosure, the individual is required to make full payment to HMRC, although there are options available under ‘time to pay’ arrangements if there is evidence of hardship. Furthermore, there is a requirement to disclose the maximum value of all assets held outside the UK at any point over the last five years, including trust interests.
Once HMRC have received the disclosure, they will issue an acknowledgement within 15 days and the ‘next steps’ in the process will be set out within a further 40 days. Depending on the circumstances, the next steps may mean that HMRC will process and accept the disclosure as submitted, or in some cases they may request further information to enquire into the disclosure.
If HMRC accept a taxpayer’s offer, they will confirm this in writing and the individual can be assured that their UK tax position is up to date following full disclosure via the WDF.