The Worldwide Disclosure Facility (WDF) replaces previous disclosure schemes such as the Liechtenstein Disclosure Facility and the Crown Dependencies Disclosure Facilities. The Liechtenstein Disclosure Facility, which closed at the end of 2015, provided UK residents with undeclared tax liabilities a unique opportunity to settle and regularise their tax affairs with HMRC on favourable terms and immunity from prosecution.
The Worldwide Disclosure Facility (WDF), available from 5 September 2016, allows anyone wishing to disclose a UK tax liability relating wholly or partly to an offshore issue. This includes:-
The launch of the WDF is linked to the implementation of the Common Reporting Standard (CRS), an international initiative where over 100 countries will exchange tax payer information on a multilateral basis. The aim of the CRS is to crack down on the use of offshore jurisdictions to facilitate tax evasion.
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.
In recent months, HMRC has issued letters to individuals are believed to have offshore income and gains that could be liable to UK tax. Last month (August 2020), HMRC began issuing ‘nudge letters’ to UK residents with potential tax liabilities on overseas income or gains. This latest batch of letters specifically targets UK residents with a financial connection to India, such as those that hold a high-yield rupee deposit account or a NRI fixed term deposit account.
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. 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).