Worldwide Disclosure Facility
The Worldwide Disclosure Facility (WDF) is a mechanism to make a voluntary disclosure relating to ‘offshore interests’.
- HMRC has increased its focus on the ‘tax gap’ and ever-increasing transparency across global tax authorities in an attempt to end tax evasion.
- It is, therefore important for you to ensure you are fully tax compliant, or you could face severe penalties from HMRC.
- This needs to be done whether you are an individual, company or a Trustee.
Why you need to review your tax position
1. Increasingly complex and constantly changing UK tax legislation
- The rules concerning offshore matters have changed drastically and rapidly.
- Heavy anti-avoidance measures have been introduced, aimed at offshore Trust structures and overseas property structures.
- You could be inadvertently affected by unknown issues created by third parties, for example, changes to complex Trust rules that have not been appreciated.
2. Increasing global transparency
- The Common Reporting Standard (CRS) provides an automatic exchange of financial information between countries.
- HMRC’s ‘connect’ software allows the collection and analysis of millions of lines of data and means you might be susceptible to investigation, even if you do not realise you have a tax issue.
3. Penalties and other consequences
- HMRC is prosecuting more cases and demanding higher penalties for offshore offences (up to 300%).
- You could be at risk of reputational damage from HMRC’s ‘Name and Shame’ powers.
- Your future tax compliance could be monitored under the 'Managing Serious Defaulters'.
Requirement to Correct and Failure to Correct
The legislation
The RtC period expired on 30 September 2018. Taxpayers with historic tax issues who failed to take proactive action before the deadline, have automatically failed to correct; these individuals are now exposed to huge penalties.
Tax Resolutions practitioners often get asked this question. HMRC’s assessment powers are not unlimited, meaning there are strict rules about how many past years HMRC can collect tax from. This depends on the nature of the non-compliance.
Broadly, the rules state that if a taxpayer has submitted inaccurate tax returns, the assessment window is defined by the behaviour that caused the inaccuracy. This is four years for innocent errors, six years for careless errors and 20 years for deliberate errors.
If the taxpayer is in a 'failure to notify chargeability' situation, because they have never registered for Self-Assessment and are effectively a tax ghost, the rules are different. The default position is that HMRC can look back up to 20 years, unless the taxpayer has a reasonable excuse for the failure, in which case, the window is four years.
Section 26 of Schedule 18, Finance (No2) Act 2017 enables HMRC to extend the period of assessment for offshore matters that were not corrected by 30 September 2018.
Effectively, this operates as follows:
- HMRC has a genuine discovery position, probably triggered by the receipt of Common Reporting Standard (CRS) data, so it can look at a taxpayer’s historic affairs
- the legislation enables HMRC to pretend it is still 6 April 2017
- the ‘normal rules’ described above are applied.
These rules apply up to 5 April 2021, in recognition of the fact it will take HMRC longer to use the vast amount of CRS data received.
The ‘normal rules’ described above have been widened for offshore matters by the insertion in Finance Act 2019 of s36A.
The effect of this is that HMRC has 12 years to assess tax lost as a result of innocent error and carelessness, starting from the 2013/14 tax year. HMRC continues to be able to assess 20 years for deliberate inaccuracies.
While this legislation penalises taxpayers with overseas assets, it was introduced to allow HMRC extra time to investigate offshore cases where information is held outside the UK and is usually more difficult to obtain.
The legislation does provide safeguards, so if HMRC has already received information from an overseas authority (e.g. CRS data) and delayed using it, the extended time limit may not apply. It remains to be seen how HMRC will use this power in future.
The standard FtC penalty is 200% of the tax lost. This can be mitigated down to a minimum 100% for a good quality, voluntary disclosure. However, the minimum penalty for disclosures prompted by HMRC is 150%.
FtC penalties apply automatically to underpaid tax on offshore assets, unless the taxpayer has a reasonable excuse. See our numerous articles and webinars on the subject of reasonable excuse.
How we can help
We can review your tax position and research and deliver an assessment of your risk.
- Our experts can assist you with making a voluntary disclosure.
- We can guide you through a current investigation and ensure that HMRC aren’t overstepping the mark.
- Our Tax Resolutions specialists can advise on penalty mitigation.
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