The Worldwide Disclosure Facility
Launched on 5 September 2016 the Worldwide Disclosure Facility (WDF) has been in operation for a number of years. It has become an enduring feature in HMRC’s arsenal to tackle what it considers to be offshore tax evasion.
HMRC direct taxpayers use the WDF to regularise their tax affairs when HMRC has received information from overseas that suggests they may be inaccurate.
Data has been flowing to HMRC since 1 October 2016 under the Tax Information Exchange Agreements (TIEAs) with the Crown Dependencies (of Jersey, Guernsey and Isle of Man) and the British Overseas Territories (of Cayman, British Virgin Islands etc).
In addition, data is now flowing globally from a myriad of other countries under the Common Reporting Standard (CRS) on an annual basis.
HMRC are undertaking regular matching exercises, using its Connect software, and correlating what has been submitted in tax returns with the data it has received. The outcome is wave after wave of “nudge” letters. HMRC titles the “nudge” letter a ‘Check of Your Tax Position’ and invites the recipient to use the WDF if they need to make a disclosure.
The Pro’s and Con’s
The WDF pro’s include:
- A streamlined registration process
- A short disclosure period of 90 days (which can be extended to 180 days in complex cases)
- Both UK and offshore matters can be addressed
- Tax avoidance schemes can be resolved as well as any matter involving tax evasion
However, the WDF cons include:
- No guaranteed immunity from prosecution.
- Although prosecution is unlikely, full payment of any outstanding tax due must be made within 90 days of registration (time to pay arrangements are possible).
- Higher penalties for offshore assets disclosures, but this is the case irrespective of the method of disclosure
Who can use the facility
Anyone who wishes to disclose a UK tax liability that relates wholly or partly to an offshore issue can use the facility.
An offshore issue includes omitted or unpaid tax relating to income or assets, offshore activities or more or less anything else that establishes an offshore connection.
The WDF will be an option for some taxpayers. For others there may be alternative means of regularising their tax affairs that are more appropriate, for example the Contractual Disclosure Facility (CDF) (if more time is needed) or the Let Property Campaign (if the disclosure involves non-commercial property).
Anyone who has already made a settlement following an in-depth enquiry or has made a disclosure previously can still make a new disclosure. However, if the disclosure covers the same tax years, there may be higher penalties.
Whilst the pace is swift to deal with a WDF disclosure, it will have a positive bearing on the penalty cost.
Higher levels of mitigation are possible where a disclosure is made via the WDF as opposed to HMRC identifying the issue in the first instance.
Examples where WDF could apply
- A Worker in the North Sea is paid by an a Norwegian employer in Norway but remains a UK tax resident. They have not declared the taxed Norwegian income
- An individual with a Swiss investment portfolio that has always reinvested the income and gains back into the portfolio but not has not disclosed the income and gains to HMRC.
- A Non-domiciled individual that has remitted funds to the UK to live but has never filed an income tax return.
- An Overseas trust that has unknowingly acquired UK relevant property and has not filed or paid an IHT 10 Yearly or Proportionate Charge.
The greater transparency and availability of information and data to HMRC means it is becoming easier and more likely for HMRC to raise a challenge, and much sooner than was previously possible.
The pragmatic option is to use the Worldwide Disclosure Facility, gain certainty and manage the cost. The alternative is to wait for the HMRC letter, face higher penalties and have disruptive, intrusive scrutiny over an undefined period of time.
For help and advice on any tax matter, contact our specialist team using the options below.