Your Complete Guide to Worldwide Disclosure Facility (WDF)

The Worldwide Disclosure Facility (WDF) is a service offered by HMRC for disclosing previously undeclared offshore income and gains.

If you are a business owner or landlord with overseas interests and you believe you may have some offshore non-compliance issues regarding your tax affairs and UK tax liabilities, then you should consider making a disclosure through the HMRC Worldwide Disclosure Facility.

In this blog we’ll give you helpful advice and information to put right your tax affairs and make a voluntary disclosure using the HMRC Worldwide Disclosure Facility, as well as information on how to make a disclosure, what to do if you receive a nudge letter, what steps there are in the disclosure process, calculating final liabilities and penalties.

What is the Worldwide Disclosure Facility (WDF)?

The Worldwide Disclosure Facility WDF, is a process where individuals can make a voluntary disclosure to HMRC when they believe UK taxes are due in relation to offshore income they have previously earnt.

The facility was opened in 2016 and is similar to previous disclosure opportunities such as the Contractual Disclosure Facility and the Liechtenstein Disclosure Facility that were offered by HMRC in the past.

With increased international transparency and over 100 countries now passing on information to the UK, the UK government is encouraging individuals to come forward to make a voluntary disclosure under UK tax rules.

The passing on of information from other countries is done via The Common Reporting Standard (CRS). This is a worldwide information-gathering and reporting requirement for financial institutions, to help fight against tax evasion and protect the integrity of tax systems around the globe.

On 1 October 2018, sanctions were introduced under the Requirement to Correct (RTC) as HMRC began taking a tougher stance on UK tax evasion. The Failure to Correct (FTC) (i.e. not making a disclosure) on any outstanding tax liabilities now comes with much higher penalties.

Why disclose under the WDF?

Under the Common Reporting Standard (CRS), HMRC receives financial information from over 100 countries around the world. This information is used by HMRC to check against the declarations made by UK taxpayers to identify potential offshore interests and assets and potential non-compliance in declaring offshore assets and identifying undisclosed offshore income.

For example, if you receive income from overseas rental property and you don’t declare this on your UK self assessment tax return or if you have overseas investments that you earn interest or income from and don’t declare these in the UK.

Making a disclosure through the WDF is preferential to HMRC finding out errors in your tax reporting and unpaid tax via a tax investigation. By making a voluntary disclosure via the WDF, you are likely to make settlement quicker, receive lower penalties and will be more in control of the whole process.

Who can use the Worldwide Disclosure Facility?

The facility can be used by individuals to make a disclosure for omitted tax relating to offshore income or gains. This can be about their personal tax, company tax, on behalf of a trust or estate, or on behalf of another individual including those who are a non-UK resident.

If you’re unsure if you meet the eligibility criteria for the WDF, you must seek professional advice.

If you’re not resident in the UK, you can still make a disclosure if you meet the eligibility criteria (see below).

What can be disclosed via the WDF?

Anyone who wants to disclose a UK tax liability that relates wholly or partly to an offshore issue can use the facility. An offshore issue includes unpaid or omitted tax in regard 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 the kind described

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.

Assets or funds from criminal activities

If at any time HMRC knows or suspects that assets or funds included in your disclosure are wholly or partly made up of criminal property, they have discretion to refuse your disclosure application.

What happens if I’m under a tax investigation?

HMRC will refer all disclosures made by taxpayers currently under tax investigations to the HMRC investigating officer and it is up to them to decide if HMRC accept the disclosure.

If you have made a settlement following an in-depth tax enquiry or disclosure previously, HMRC will consider your new disclosure for further investigation and if it covers the same period, you may face a higher penalty.

How do I make a disclosure to HMRC via the WDF?

Initially, you must notify HMRC using the Digital Disclosure Service (DDS) of your intention to make a WDF tax disclosure. This should be done as soon as you know that you have outstanding offshore tax matters or any unpaid tax on offshore income.

dns accountants can guide you through the whole disclosure process to ensure your tax affairs are up to date and your voluntary disclosure is made in the correct way.

You’ll need this information to notify and disclose:

• your name
• your address
• your National Insurance number
• your unique taxpayer reference, known as a ‘UTR’
• your date of birth
• the name, reference and contact details of any agent acting for you

Once you have notified HMRC of your intention to make a disclosure, you’ll have 90 days to:

• gather the information you need to complete your disclosure form
• calculate the final liabilities including tax, duty, interest and penalties
• fill in your disclosure form, using the unique disclosure reference number (DRN) HMRC give you when you notify

You must give also provide any extra information in support of your disclosure that HMRC request.

How far back can you go with worldwide disclosure facility?

The tax calculations can potentially go back up to 20 years depending on the circumstances of your case.

What are HMRC nudge letters about offshore income?

Over the past few years, HMRC had been writing to those individuals that it believes have failed to tell them about all their offshore income or gains. These letters are often referred to as ’nudge letters’.

These nudge letters are a standard message sent to many taxpayers (often referred to as ’one to many letters’).

If you have received a letter from HMRC it may also be accompanied with a request to complete a Certificate of Tax Position, in this case you have been identified by HMRC as someone who may need to make a tax disclosure.

Although these letters are sent to thousands of taxpayers they are not sent randomly and should not be ignored. The letter will be based on data obtained via the Common Reporting Standard or via other third parties. That is not to say that the information HMRC receive is always correct, it may well be incorrect or misleading, but even in these cases of misinformation, an explanation to HMRC will still be required.

Therefore, it is worth getting advice from a qualified tax professional such as the tax team at dns accountants to help you to respond to a HMRC nudge letter.

What happens if you do nothing?

Tax regulations and nudge letters from HMRC should not be ignored!

If you should make a full disclosure under the HMRC Worldwide Disclosure Facility and decide not to come forward, then HMRC can open an enquiry into your tax affairs. If you choose to take this route, then you run the risk of:

• Not controlling the enquiry and facing uncertainty that can last months or even years.
• Higher financial penalties, particularly where HMRC has sent a nudge letter to the taxpayer and have to prompt the taxpayer to make a disclosure.
• The risk that HMRC digging deeper and focusing on other aspects of your tax affairs, taking additional time, energy and cost on your behalf.
• In the worst cases, you may face a criminal prosecution.

What are the penalties under the Worldwide Disclosure Facility?

When disclosing for tax years after 2015/16, standard offshore penalties apply. These penalties depend on the territory your offshore matters are in, your behaviour and whether the disclosure was prompted or unprompted.

WDF disclosures made after 2018, when disclosing irregularities for tax years up to and including 2015/16, are subject to Failure to Correct (FTC) penalties. FTC penalties are higher than standard offshore penalties, but making an unprompted disclosure can reduce these penalties. This is one of the main benefits in making an unprompted disclosure, rather than waiting for HMRC contact you to make a prompted disclosure.

The minimum penalty for an unprompted disclosure under FTC is 100% of the unpaid tax, provided the disclosure is full and accurate.

The maximum penalty for a prompted disclosure under FTC is 200% of the unpaid tax. However, if you submit a full and accurate disclosure, the FTC penalty can be reduced to 150%.

How to calculate what you owe

As part of using disclosure facilities the onus is on you to calculate what you owe.

Depending on your circumstances calculating what you owe can be complicated. Our advice is to seek professional help from accountants and tax advisors such as dns.

You’ll need to work out the additional liabilities for each year that is wrong. Your calculations should only include undeclared offshore gains and income.

Summary

It is really important that you keep your tax affairs in order at all times and tax compliance is very important in the UK as HMRC crack down on tax avoidance and tax evasion.

You need to ensure that you have not omitted tax relating to offshore income and gains on your tax returns to HMRC. The Worldwide Disclosure Facility (WDF) gives you the ability to disclose any offshore assets, incomes or gains as part of the disclosure process and voluntary disclosures can often lead to a better outcome for taxpayers with the potential of lower penalties.

A full disclosure for undisclosed offshore income can be made for a number of previous tax years to ensure that your tax liabilities are up to date. Your disclosure can be for your personal tax affairs a company’s tax affairs or on behalf of a trust, estate or other individual. The disclosure process will allow you to understand your offshore liabilities and settle offshore matters with HMRC and settle your unpaid tax.

Call us today on 03300 886 686, or you can also e-mail us at enquiry@dnsaccountants.co.uk. for help and advice on making a disclosure to HMRC.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.