About the Worldwide Disclosure Facility (WDF)
UK residents are subject to UK tax on worldwide income and gains, including in India. This is generally reported through an annual self-assessment. Those that have failed to declare may now need to do so under HMRC’s Worldwide Disclosure Facility (WDF).
The WDF, launched in 2016, allows those with undisclosed offshore money, gains, investments or assets to settle and regularise their tax affairs with HMRC, but unlike previous disclosure arrangements, no longer offers any favourable terms or lower penalties.
How far back?
There are complex rules that determine the time period that needs to be disclosed under the WDF. Generally speaking, if a taxpayer has submitted inaccurate tax returns, the time period can be capped at 4 years for innocent errors, 6 years for careless errors and 20 years for deliberate errors. If the taxpayer failed to notify chargeability i.e. failed to register for self-assessment, the default position is 20 years, unless the taxpayer has a reasonable excuse for the failure.
It is a misconception that you can avoid filing a disclosure under the WDF by simply amending or filing historic tax returns.
WDF penalties?
WDF disclosure after 1 October 2018 are subject to the Requirement to Correct (RTC) sanctions which sets out minimum penalties to reflect HMRC’s toughening approach.
FTC penalties for a “prompted” disclosure is generally 200% of the unpaid tax, but can be negotiated down to 150% depending on the quality and accuracy of the disclosure. “Unprompted” disclosures can be reduced down to 100%, again depending on the quality and accuracy of the disclosure.
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.
Moreover, HMRC have confirmed an inaccurate or incorrect disclosure may lead to a civil intervention or criminal prosecution. It is therefore important to appoint a qualified professional with the relevant experience in dealing with such cases. 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).
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.
Mitigate penalties with a reasonable excuse?
WDF disclosure after 1 October 2018 are subject to the Requirement to Correct (RTC) legislation which sets out minimum penalties, unless you can demonstrate a reasonable excuse as per FA (No. 2) 2017, Schedule 18, paragraph 1. The RTC legislation specifically states circumstances that cannot be taken to be a reasonable excuse:
- an insufficiency of funds is not a reasonable excuse,
- where you relied on any other person to do anything, that cannot be a reasonable excuse unless you took reasonable care to avoid the failure
- where you had a reasonable excuse but the excuse has ceased, you are only to be treated as continuing to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased
- relied on advice, for example, relied on a tax adviser who did not have appropriate expertise for giving the advice
