Worldwide Disclosure Facility

If you are UK resident, you would normally need to declare your worldwide income and gains to HMRC on an arising basis, unless you are eligible for the remittance basis.

You will usually receive a credit for foreign tax paid overseas to avoid a double tax charge on the same source of income or gains.

We can advise on the amount of foreign tax credit relief available to reduce your UK tax liability on historic income and gains.

In some circumstances, individuals who are UK resident but domiciled outside of the UK are not required to pay tax on foreign income/gains which is not remitted to the UK in the event they make a claim to the remittance basis.  

A claim to the remittance basis can lead to personal tax-free allowances being removed and a remittance basis charge being payable by long-term residents.

These rules are complex and have changed several times in recent years. It is easy for remittance basis users to make mistakes that inadvertently lead to additional tax liabilities.

We can provide expert advice and help ascertain whether a claim to the remittance basis is beneficial in your situation

There is no de minimis in relation to who HMRC targets under its nudge letter campaign. HMRC puts the onus on the taxpayer to act, by writing to confirm that HMRC has received information about ‘overseas assets, income or gains’ and waiting for a ‘certificate of tax position’ to be returned. If no response is received, HMRC continues to remind the individual until action is taken. In instances where the letter is ignored, HMRC is likely to investigate the individual concerned.

The certificates of tax position invite the individual to confirm one of the following:

• A disclosure is necessary and will be made under the Worldwide Disclosure Facility.
• The overseas income and gains have been declared as appropriate.
• Overseas income and gains are covered by personal allowances/reliefs; hence, they have not been declared.
• Overseas income and gains have not been declared, as there is no tax liability.

The certificates carry a prosecution warning, so Crowe’s recommendation is that such certificates should not be completed; the certificates are not statutory, meaning that HMRC cannot insist they be completed.

Tax rules are complex, and it is easy to make a mistake, so it is always preferable to seek professional advice before deciding how to respond to prevent extended communications with HMRC.  

It is often the case when trying to calculate tax liabilities for historic years that gaps may exist.  

HMRC is aware of this and will expect you to make reasonable attempts to obtain the necessary information. 

In the event information cannot be found, HMRC will expect you to use reasonable estimates.

The final WDF disclosure requires the inclusion of a penalty figure based on a percentage of the tax payable. The size of the penalty is determined by the seriousness of the behaviour which led to the loss of tax and whether or not the disclosure was prompted by HMRC. In some cases, the penalty rate can be reduced to 0% or suspended.   

Depending on the years involved, penalties for Failure to Correct under the Requirement to Correct legislation could be payable at a rate of between 100% and 200% of the tax. It might be possible to remove these penalties by successfully claiming you have a ‘reasonable excuse’.

It is vital that disclosures of tax resulting from overseas assets are handled by a specialist who can ensure penalties are kept to the lowest level possible. We can assist with this.  

As with penalty levels, the number of years that a WDF disclosure has to cover is determined by the seriousness of the behaviour which led to the under-declaration of income or gains. It also depends on whether you have filed self-assessment tax returns and missed off the overseas income or have failed to file a return at all. The number of years that have to be disclosed can be as low as 4 or as high as 20.

Where tax from overseas assets is involved, the number of years that HMRC can assess can be extended to a minimum of 12.

We can help you to make sure that your disclosure includes the correct number of years based on your particular circumstances.

In order to make a disclosure under the WDF, you must have previously undeclared income or gains relating to an overseas (non-UK) source. You must ensure a full disclosure of all irregularities is made, including undeclared UK income or gains.

We can help you review the history and advise on what needs to be disclosed.

HMRC receive data via the Common Reporting Standard (CRS) which involves the annual exchange of financial information between more than 100 countries. Bank interest, dividends, income from annuities and other insurance products, account balances and proceeds from the sale of financial assets are reported annually to the customer’s ‘home’ tax territory.

HMRC review the data and send letters to those who are listed but don’t appear to have declared the sources.