A look at the Worldwide Disclosure Facility
“HMRC is getting even tougher on tax evasion. We relentlessly pursue tax evaders to ensure they pay every penny of the taxes and fines they owe, pushing for the toughest possible sanctions where appropriate. We’ve closed old disclosure facilities, increased penalties and ramped-up our powers to tackle evaders and those that help others evade. Alongside this, international cooperation through global tax transparency is making it easier for us to catch evaders, as we increasingly receive more information about financial assets which people had hoped would remain hidden. Our message couldn’t be clearer: there are no safe havens left for tax evaders and no-one should be in any doubt that the days of hiding money offshore with impunity are gone.”
- Jenny Granger, previous HMRC Director General of Enforcement and Compliance
In days gone, it was very difficult for HMRC to identify offshore assets, income, gains and transfers which should have been declared for UK tax but were not. Sometimes this was a mistake. Sometimes it was deliberate. However, times have since changed. Countries around the world are cooperating more and more in attempts to get what is owed from their citizens. With this is mind, HMRC has provided solutions for individuals to disclose their offshore tax liabilities – namely the worldwide disclosure facility.
1. What is the worldwide disclosure facility?
The worldwide disclosure facility (WDF) was launched by HMRC in 2016 after it closed all offshore services. It is offered as a final chance for UK taxpayers to declare their offshore affairs before HMRC launch an enquiry. The advantage of using the worldwide disclosure facility is that the individual would be making a voluntary disclosure and as such the penalties applied will be lower.
The facility itself can be used by anyone who wants to disclose a UK tax liability that relates to an offshore issue. Such issues might include:
- Income arising from a source in a foreign territory
- assets held in a foreign territory
- activities carried in a foreign territory
2. Why a disclosure should be made now
The UK is one of over 100 countries that has committed to exchange information between tax authorities to combat tax avoidance and evasion. This information (provided by financial institutions and investment companies) is exchanged automatically via the OECD’s common reports standard (CRS). Details of bank interest, dividends received and property sales are freely shared between countries.
All of this is to say that HMRC will find out about any offshore assets that may be leading to tax irregularities. It is best that the matters are disclosed sooner rather than later, else an investigation might be launched where penalties could be significantly higher and, worse yet, the individual could face prosecution.
3. The disclosure
To make a disclosure, the individual first needs to notify HMRC via the digital disclosure service (DDS). After this, the full disclosure must be made within 90 days of notifying and can be done using HMRC’s online form. A Disclosure Reference Number (DRN) will be provided and this must be quoted whenever there is correspondence with HMRC.
The disclosure itself should contain all previously undisclosed UK tax liabilities. This will include the tax that was initially due and a calculation of penalties and interest charged. The disclosure should be accurate and complete. If it is false or incomplete then HMRC may levy higher penalties, open a criminal investigation with a view to prosecute and/or ‘name and shame’ the individual in point.
4. The behaviour
The worldwide disclosure facility requires a self-assessment of the behaviour that gave rise to the tax omission. The behaviours include:
- not deliberate but have a reasonable excuse
- inaccurate return but took reasonable care
- not filed a return but have a reasonable excuse
- inaccurate return without reasonable care
- not deliberate without a reasonable excuse
- deliberate failure to notify
- deliberately submitted an inaccurate return or deliberately withheld information by failing to submit a return.
Identifying the behaviour correctly is vital to a good disclosure and can determine the level of penalty charged – getting this wrong could lead to criminal prosecution. The behaviour might seem obvious to the individual that is making the disclosure for it is them that the assessment concerns. However, HMRC will often have a differing view on what constitutes as deliberate or reasonable. An experienced tax investigations specialist that understands the disclosure from HMRC’s perspective is important in offering a rebuttal to their assessments where they may not be fair.
HMRC advises that a professional is sought if a person is unsure about which behaviour applies to them.
Where tax is overdue, HMRC may charge interest on the payment outstanding. The charge accrues daily as a percentage of the tax liabilities. The interest rate itself is linked to the Bank of England base rate. As at the time of writing this, the rate is 3.50% but it is subject to change and has done so numerous times over the last 20 years.
In addition to interest, penalties may be charged. From 01 October 2018, there are two main factors determining the penalties for offshore matters:
- was the person non-compliant during the 2015/16 tax year and years before that?
- was any non-compliance disclosed on or before 30 September 2018 under the requirement to correct (RTC) regime?
Under RTC, the individual had until 30 September 2018 to make a correction of their tax affairs. The purpose of RTC was to incentivise people to regularise their offshore tax affairs. If an individual has failed to correct their irregularities by such time, then they are charged higher failure to correct (FTC) penalties. In this case, all behavioural factors are ignored – a deliberate act is weighed the same as a simple mistake
If FTC is applicable then the standard penalty rate is 200% of the tax owed. This can be reduced to a minimum amount of 100% depending on the quality of the disclosure. FTC does not apply where the non-compliance has been disclosed under RTC. FTC also does not apply to non-compliance concerning 2016/17 and later years. For these years, the existing penalty system is in effect.
The existing penalty system is determined by where the income or gains arose. Territories are placed into categories that have differing penalty rates. The maximum penalty ranges from 100% to 200%.
The times they are a-changin’ The world is not the same place that it was 10 years ago. The systems and methods of storing and collecting information are constantly changing. HMRC is attaining more powers to watch over UK citizens and offshore finances are now at risk. If a disclosure is required, then disclose you should