HMRC launch Worldwide Disclosure Facility to cover undeclared overseas assets, income and gains
HMRC’s Worldwide Disclosure Facility (WDF) was unveiled on 5 September 2016 and is planned to be available until 30 September 2018 when the Common Reporting Standard (CRS) will come into force. HMRC are also introducing new stricter sanctions under the “requirement to correct” or “failure to correct” legislation currently subject to consultation.
The underlying message from HMRC is that people need to bring their affairs up to date now before they receive details on the overseas assets. Failure to act could result in significantly higher penalties at best or possible criminal investigation, in the worst case scenario.
The WDF is a streamlined approach to making a voluntary disclosure and must be accessed through the online Digital Disclosure Service. The facility provides a simplified process for making the voluntary disclosure and only a limited amount of additional information can be provided. It is key that anyone considering using the WDF consider all the disclosure options before making a decision to ensure the right route if chosen.
The WDF is available to all (UK and non UK resident) individuals and entities that have a previously undisclosed UK tax liability that arose from an overseas source or from a UK source that was transferred abroad. The facility covers tax liabilities relating to all direct taxes and inheritance tax for up to 20 years. It is not a replacement for the Liechtenstein Disclosure Facility (LDF) that closed on 31 December 2015, as the WDF does not have the same beneficial terms such as limitation of the period required to be disclosed and reduced penalties. There is also no scope for VAT to be disclosed.
A voluntary disclosure made through the WDF must include the tax, interest and penalties due in line with legislation in force at the time the tax arose.
As a disclosure under the WDF is still deemed to be on a voluntary basis, the penalties are lower than if the disclosure were prompted by an HMRC enquiry. HMRC retain the right to deny access to the facility, to review the penalty loading and to investigate the disclosure further, particularly if it is made subsequent to a previous HMRC enquiry. Whilst disclosure does not guarantee immunity from criminal prosecution, HMRC historically (subject to certain conditions) have not pursued a criminal investigation when a voluntary disclosure has been made.
The WDF is the final opportunity to make a voluntary disclosure to HMRC before the automatic exchange of information comes into force. HMRC will start to receive details on overseas assets, income and gains from the early adopters of CRS in May 2017. This first tranche of information exchange should be completed by September 2017. The remaining signatories to the CRS are to start exchanging information a year later in relation to assets held in 2017. All signatories will then continue to exchange information on an annual basis.
Similar campaigns are currently available (e.g. the Let Property Campaign) that provide a straightforward way to make a simple disclosure. In more complex cases, it may be beneficial to make a more detailed disclosure directly to a specific HMRC department. This may entail more work up front but could ultimately result in a more cost effective and efficient resolution of the matter overall. It is important that each client’s situation is reviewed carefully to ensure that the solution implemented provides the best resolution in each case.