Navigating the HMRC worldwide disclosure facility

Why Worldwide Disclosure Facility (WDF)?

HMRC send out nudge letters’ to many taxpayers asking them about offshore income. Some people will deal with them via a regular accountant, others will ignore them and neither of these routes are the best way to deal with such nudge letters.

If you have undisclosed offshore income and you want to make a disclosure to HMRC, then you may be eligible to do this via HMRC’s Worldwide Disclosure Facility (WDF). The WDF is a digital service offered by HMRC in the UK allowing people to disclose offshore non-compliance income arising from overseas interests.

In this blog we explain what you need to know about the WDF, why you need to use specialist tax advisers to represent you and the consequences you may face if you ignore nudge letters or don’t make a disclosure in this way.

What is the HMRC Worldwide Disclosure Facility?

Anyone who wishes to disclose a UK tax liability that is wholly or partially related to offshore money, gains, investments, or assets could do so with the Worldwide Disclosure Facility. This includes:

• Income derived from a source other than the UK.
• Assets located or held outside the UK.
• Activities carried out completely or mainly outside the UK.
• Where funds related to unpaid taxes are transferred outside the UK.

When is the Worldwide Disclosure Facility used?

The WDF is used where the tax liability or unpaid tax relates to an offshore matter or offshore income. The WDF opened on 5 September 2016. This followed the closure of all other offshore disclosure facilities on 31 December 2015. On 1 October 2018, new sanctions under Requirement to Correct were introduced to reflect HMRC’s toughening approach.

Over 100 countries have committed to exchange information on a multilateral basis under the Organisation for Economic Co-operation and Development’s Common Reporting Standard (CRS). This information is used by HMRC to check against UK taxpayers to identify potential offshore non-compliance. The objective of the CRS is to increase international tax transparency.

Who can use the Worldwide Disclosure Facility?

Anyone who wants to disclose a UK tax liability that relates wholly or partly to undisclosed offshore income can use the facility. An offshore issue includes unpaid tax or omitted tax relating to:

• income arising from a source in a territory outside the UK
• assets situated or held in a territory outside the UK
• activities carried on wholly or mainly in a territory outside the UK
• anything having effect as if it were income, assets or activities of a kind described above

It also includes funds connected to unpaid or omitted UK tax that you have transferred to a territory outside the UK or are owned in a territory outside the UK.

HMRC have discretion to refuse your application if the application is wholly or partly made up of criminal property.

If you’re unsure if you meet the eligibility criteria for the WDF, you should seek professional advice from specialist tax advisers and accountants such as dns accountants.

Non-UK residents can still make a disclosure if you meet the eligibility criteria above.

How does the Worldwide Disclosure Facility (WDF) work?

Any taxpayer can apply to participate in the WDF through the Digital Disclosure Service about their:

• own tax affairs
• company’s tax affairs, which includes where they’re a director or company secretary

The WDF can be used on behalf of somebody else. For example, an Executor of an estate can act on behalf of somebody who has died.

The WDF allows the taxpayer or their adviser to make a disclosure, calculate the tax, interest and penalties due. The taxpayer or their adviser must self-assess the amount of penalty. Using an experienced tax adviser such as dns will ensure you don’t overestimate or underestimate the amount due, as this can be a complex calculation.

The disclosure process using the Worldwide Disclosure Facility

Below are details of the disclosure process when using the WDF.

• Individuals, companies, and trustees with offshore tax liabilities should register online using the HMRC Digital Disclosure Service (DDS).
• Once you’ve notified HMRC as per above, a disclosure will need to be prepared within 90 days of registering. This disclosure will need to include calculations of the tax liabilities, including tax, duty, interest and penalties.
• To work out the correct level of penalties, you need to self-assess behaviour that resulted in failure to disclose. This and the jurisdiction will determine the level of penalties applied. This will also be relevant in deciding the number of years to be included within the disclosure.
• Matters impacting the disclosure (such as residence or domicile status) must also be disclosed.
• The disclosure needs to be submitted through the DDS and must contain a unique disclosure reference number (DRN) that you were given when you registered.
• After submitting the disclosure, individuals should expect to receive an acknowledgement from HMRC within 15 days.
• Payment of the full disclosure amount including tax owed, duty, interest and penalties is required at the time of submission. Detailed instructions regarding payment will be provided by HMRC.

Supporting you through the WDF process

Here at dns, our expert tax advisers will advise and support you through the whole WDF process. It’s important to seek professional advice to ensure compliance and that the right potential tax liabilities are included, the correct penalties are included and interest is calculated accurately.

UK tax laws can be complex. Cooperation and full disclosure with HMRC through a professional adviser will also help to reduce penalties.

Do you need to go back 20 years on a WDF disclosure?

UK tax law includes three categories of behaviours: innocent, careless (similar to negligence) and deliberate (similar to fraud) behaviour. Each behaviour is linked to time limitations. These relate to charging back taxes for either 4, 6 or 20 years. In some cases, the 4 & 6 years rules are replaced with a 12 year limit. Understanding these time limits can make a huge difference to the final liabilities including the tax, interest and penalties charged.

Is it a criminal offence?

Tax evasion is a criminal offence and can still face criminal prosecution. To avoid this, a professional adviser can ensure you use the right disclosure vehicle to disclose non-compliance and unpaid taxes. capital gains.

Other disclosure facilities are available such as the Contractual Disclosure Facility, Code of Practice 8 (CoP8) or Code of Practice 9 (CoP9) and these do provide immunity from prosecution.

A professional tax adviser such as dns can advise on the most appropriate process for you given your personal circumstances, the risks and safeguards offered by the different facilities.

What about tax treaties with other countries?

As part of any assessment of your individual tax affairs, we will discuss if you have paid tax in a country outside the UK. If you have, you may be entitled to a credit to reduce any further UK tax liabilities through the Worldwide Disclosure Facility. Our team understand tax treaties across a wide range of countries and can advise you accordingly and deal with HMRC on this matter also.

Do I need to include foreign investments in WDF disclosure?

Investment vehicles such as property, pension funds, trusts and life insurance bonds all have UK tax implications and will affect disclosure and reporting for WDF purposes. Rules around residency and domicile status will also need to be considered as rules are more complex if you are a non-UK domiciled individual or are a non-UK tax residency for periods of time.

Summary

HMRCs Worldwide Disclosure Facility is used to disclose UK tax liabilities that relate wholly or in part to an offshore non-compliance matters or undeclared offshore income.

The WDF is often used where there are offshore liabilities, but no fraud has been committed. For example, a source of income or gain has been omitted and not taxed from outside the UK. Examples of this could be receiving income or a pension from an overseas employer that has been overlooked.

It is very important to sort out your tax affairs and meet your tax obligations. Making a voluntary disclosure about worldwide income and tax liabilities using a disclosure facility such as the WDF will generally ensure a better outcome with HMRC and can lead to a reduction in potential penalties.

Burying your head in the sand and trying to hide any offshore issues can lead to serious consequences. Full cooperation and submitting a full and accurate disclosure with accurate tax liabilities calculated can avoid more serious consequences such as higher penalties and interest or a criminal prosecution.

However, the disclosure process, knowing what to disclose, for what period and working out tax, interest and penalties can be hugely complex. Therefore, it is important to appoint a specialist who has expertise, knowledge and experience of handling this process.

How can dns accountants help with WDF?

Our tax experts can assist you to offer support and advice in the following ways:

• Review of your individual worldwide and UK tax affairs including potential undeclared offshore income and undeclared tax.
• Advice on the best route and facility for disclosure.
• Submission of the initial registration.
• Preparing and filing the overall disclosure report.
• Calculating and agreeing tax liabilities including, tax owed, potential penalties, interest
• Handling all HMRC communication on your behalf.

For help and advice on tax liabilities, offshore tax issues, residency status, overseas interests, disclosure facilities and other worldwide tax issues please contact dns today on 03300 886 686 , or you can also e-mail us at enquiry@dnsaccountants.co.uk.

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