The Worldwide Disclosure Facility is a digital service that allows taxpayers to disclose discrepancies in offshore monetary gains, investments, or assets with HMRC. The updated disclosure agreement program differs from previous offers, so taxpayers should understand the terms before notifying and disclosing to avoid unnecessary penalties.
The Purpose of the Worldwide Disclosure Facility: Increasing Tax Transparency Following the Common Reporting Standard (CRS)
The Organisation for Economic Co-operation and Development’s Common Reporting Standard (CRS) includes over 100 nations committed to exchanging information on a multilateral basis to increase global tax transparency.
All offshore HMRC facilities closed as of 31 December 2015. Prior to that date, HMRC encouraged individuals with tax incentives to disclose any discrepancies in their tax affairs.
The Worldwide Disclosure Facility opened on 5 September 2016. HMRC introduced new sanctions following the Requirement to Correct on 1 October 2018 to tighten tax obligations. Investigations date back four years for “innocent” errors, like accidents, six years for “careless” mistakes, and 20 years for deliberate errors.
The Benefit of Disclosing
Following the Common Reporting Standard, HMRC receives international tax data from over 100 nations. The organisation will begin a prompt investigation for any noncompliance to tax regulations. Notifying HMRC of offshore tax avoidance schemes or issues before this investigation begins can reduce the added penalties.
Understanding Tax Incentives
As of 5 September 2016, the Worldwide Disclosure Facility replaces all previous tax incentives offered to urge individuals to come forward, such as the Liechtenstein Disclosure Facility and the Crown Dependencies Disclosure Facilities. The WDF does not offer tax incentives but rather the potential to avoid the increased penalty that may arise by postponing the affair.
Eligibility Criteria to Disclose UK Tax Liabilities
Individuals with UK tax liabilities relating partially or wholly to offshore issues may use the Worldwide Disclosure Facility. Offshore issues may include unpaid or omitted taxes relating to the following:
- Income from sources in territories outside of the UK
- Assets held in territories outside the UK
- Activities controlled partially or entirely outside of the UK
- Anything affecting the above-described income, assets, or activities
- Funds connected with omitted or unpaid UK tax transferred to outside territories
Non-residents of the UK may also use the Worldwide Disclosure Facility, assuming they meet all other criteria.
If HMRC suspects or discovers that the items included in an individual’s disclosure include any criminal property (in part or whole), the organisation has the right to refuse the application. All disclosures go to an investigating officer to examine the enquiry and determine acceptance status. Each disclosure requires a new investigation, even for individuals filing repeat inquiries on similar periods.
Any taxpayers unsure if they’re eligible to use the Worldwide Disclosure Facility should meet with a legal advisor to discuss their case.
Who Is the Worldwide Disclosure Facility For?
The Worldwide Disclosure Facility is for UK-based individuals with discrepancies in their offshore tax affairs, including the following groups:
Individuals who know of their tax liabilities and wish to stay ahead of the situation before the investigation begins
Individuals who’ve already gotten a letter in the mail from HMRC notifying them of their requirement to make a disclosure
The Worldwide Disclosure Facility works for all tax years up to 2023/24 (the current year).
How to Disclose Liabilities
To register for and notify the Digital Disclosure Service, individuals need the following items:
- National Insurance number
- Unique taxpayer reference (UTR)
- Date of birth
Name and contact details of referencing agents (when applicable)
After gathering these details, individuals can notify the Worldwide Disclosure Facility, then send the disclosure. HMRC requires all disclosures to be sent within 90 days of the notification.
Before disclosing tax liabilities to HMRC, individuals must notify the organisation of their plans to do so. The notification should come as soon as the individual becomes aware of their liability. Taxpayers can make notifications about their own liabilities or on behalf of another person, assuming they have the proper credentials.
Individuals may not lump multiple liabilities into one notification. For example, if a husband and wife share a business with tax liabilities, they may each need to file separate notifications.
After filing the notification, individuals will have 90 days to send the disclosure, so they should prepare by gathering the following items:
- Information required for the disclosure (listed below)
- The calculation of all liabilities (including tax, duties, penalties, and interest)
- The completed disclosure form (including the unique disclosure reference number)
Individuals or companies can notify using the DDS form. Agents may also use the DDS form to notify on their clients’ behalf, though their clients must submit the COMP1a form first to authorise communication. Individuals submitting disclosures for someone who’s died may use the DDS form, though they should clarify this detail when doing so.
After submitting the notification, HMRC will respond with a unique disclosure reference number (DRN) used to file the disclosure. HMRC requires taxpayers to fulfil their payment amount in full at the time of submission. Individuals that cannot pay in full may be able to make payment arrangements by contacting HMRC before submitting the disclosure.
The disclosure form will ask about whether or not HMRC prompted the investigation and what capacity the individual is completing the form in. Individuals will enter their contact details and information about who they’re completing the form for, if applicable.
The primary aspect of the disclosure form is a self-assessment where individuals indicate the relevant years for their liabilities and which of the following options apply to their discrepancies:
- Accidentally failed to notify HMRC of a tax liability with a reasonable excuse
- Submitted an inaccurate return despite using reasonable care
- Did not file a return but has a reasonable excuse
- Submitted an inaccurate return but didn’t take enough care
- Failed to notify HMRC of a tax liability on accident but without a reasonable excuse
- Deliberately failed to notify HMRC of a tax liability
- Deliberately submitted an inaccurate return or withheld information by not submitting a return
Checking accurate descriptions for all events is critical, as underplaying what occurred can increase penalties and lead to civil or criminal proceedings. Individuals that are unsure what applies to them should seek legal advice before proceeding.
After completing the above section, individuals will calculate total gains and income across taxes with the calculated interest charged on the full amount according to UK law. Individuals can use interest rates to calculate the figure, though note that the interest runs from the initial late date until the final fulfilment date. The tax calculation process involves numerous steps that can quickly lead to error, so individuals should consult with tax or legal advisors for support before submitting.
Reporting Onshore vs. Offshore Tax Issues
The Worldwide Disclosure Facility is primarily for offshore tax issues. Individuals may not make a disclosure unless they have a liability relating partially or wholly to an offshore account. When submitting information, individuals should include any onshore issues as well, though the penalties for onshore liabilities will differ.
When to Expect Higher Penalties
HMRC investigates every disclosure as an individual matter. In general, honest disclosures including accurate information should end in an accurate penalty with no excess fees. HMRC may charge higher penalties when the following scenarios occur:
- The individual is already under investigation before submitting the disclosure
- The disclosure connects to a previous investigation or disclosure
- The information does not adhere to UK law on calculating penalties
- The individual provides false, inaccurate, or dishonest information
The more time between the liability event acknowledgement and disclosure submission, the less likely HMRC will agree to full reductions. Significant periods of over three years typically have stricter reductions of no more than 10%.
Prompt and accurate disclosures can prevent further penalties and prosecution. To protect financial and legal interests, individuals should seek legal support as soon as they become aware of their liabilities. Their legal advisor can help them begin the disclosure process as soon as possible to stay ahead of the investigation.
Basic Reporting Rights
While HMRC may enact strict laws regarding submissions to the Worldwide Disclosure Facility, Article 6 of the European Convention on Human Rights gives individuals specific rights that they should understand during the disclosure process.
Individuals have the right to:
- Seek support from a professional advisor, like an attorney or tax consultant
- Deal with the penalty matters without unreasonable delay
- Not incriminate themselves
The right to silence may dissolve after submitting a penalty disclosure and determining a penalty must be fulfilled. At that point, HMRC may use an individual’s given statements during the investigation, though only to the extent to which they’re willing to provide.
During the disclosure process, individuals will calculate all assets held outside of the UK in the last five years. Assets include the following items (in pounds using this exchange rate):
- Bank accounts
- Other account forms
- Debts owed to the individual
- Loans and bond deposits
- Shares, stocks, and government securities
- Pensions and life assurance policies
- Property, buildings, timeshares, etc.
- All motor vehicles (including boats, caravans, etc.)
- Antiques and art
- Silver and gold items
- Investment assets
Individuals with complex liabilities may request an additional 90 days to submit their disclosure, extending the total deadline to 180 days. If 90 days isn’t enough time, contact HMRC or meet with a legal advisor.
The Offer Letter
HMRC expects individuals to send the full amount of owed taxes, duties, interest, and penalty payments with the disclosure submission. Upon submitting this form, HMRC will send an acknowledgement within 15 days with the next intended course of action. The organisation may require proof of evidence that information in the disclosure is true.
The letter that HMRC sends after the notification step with the DRN will include payment instructions. Individuals must adhere to these instructions and pay in full or contact the Offshore Disclosure Facility to create an alternative payment plan.
Submitting tax liabilities to the Worldwide Disclosure Facility involves numerous complex steps that can worsen your penalties when completed incorrectly. If you need help completing your notification or disclosure forms, contact Laggan & Associates Limited at 020 3695 1160 to meet with an experienced tax consultant from our London based team.
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