It is understood this latest wave of letters follow the receipt of financial information under the Common Reporting Standard (CRS) from the Income Tax Department of India. The CRS is an international agreement involving the UK and over 100 countries including India. It allows for the exchange of information between jurisdictions about financial accounts and investments to help stop tax evasion.
Attached to the letters is a ‘Certificate of Tax Position’. This instructs individuals to sign a statement stating that either their tax affairs need to be brought up to date through the Worldwide Disclosure Facility (WDF), or they have correctly declared all their worldwide income and gains.
In most cases, UK residents are subject to UK tax on worldwide income and gains. This is generally reported through an annual self assessment. Those that have failed declare may now need to do so under HMRC’s Worldwide Disclosure Facility (WDF).
The WDF allows those with undisclosed offshore money, gains, investments or assets to settle and regularise their tax affairs with HMRC, but unlike previously, no longer offers any favourable terms or lower penalties.
In particular there can be high penalties under the Failure to Correct (FTC) rules. FTC penalties for a prompted disclosure are generally between 150% and 200% of the unpaid tax (unless there is a reasonable excuse or special circumstance).
FTC will not necessarily apply to all years and there are complex rules for determining how many years may be assessed and the rates of penalty chargeable. Specialist advice is recommended to ensure the disclosure covers the correct period and to help mitigate penalty exposure.
The WDF will not be appropriate in every case and in more serious cases an alternative approach may need to be adopted.
Regardless of whether a disclosure is required or not, the consequence of making an incorrect Certificate of Tax Position declaration could be severe.
Jeffreys Henry LLP has significant experience in dealing with HMRC investigations and disclosures, including the current WDF (opened on 5 September 2016) and previous the Liechtenstein Disclosure Facility (closed in 31 December 2015).