Automatic Exchange of Information arrangements between tax authorities are gathering pace and over 100 countries have signed up to a global system which is known as the Common Reporting Standard (CRS). This will come into force over the next two years. Under the CRS tax authorities in the participating countries will automatically exchange information. This exchange of information will give HMRC unprecedented access to information about UK taxpayers who have wealth overseas. The information provided will be more extensive than just the details of interest earned on a foreign bank account.
HMRC have introduced a new disclosure arrangement, the Worldwide Disclosure Facility (WDF) to give taxpayers a final opportunity to make a voluntary disclosure of offshore income and gains and put their tax affairs in order. This disclosure facility will remain open until 30 September 2018 – the CRS comes fully into effect in October 2018.
Previous disclosure arrangements offered some concessions on the penalty provisions to give some incentive for people to make a disclosure. The Liechtenstein Disclosure Facility, which closed on 31 December 2015, was particularly advantageous because disclosures were limited to income and gains arising after 5 April 1999, there was a lower rate of penalty and a prosecution amnesty. The WDF does not offer any concessions.
The WDF can be used to disclose a UK tax liability relating wholly or partly to an offshore issue. This would include unpaid 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.
HMRC Digital Disclosure Service
In order to use the WDF it is necessary to register using the HMRC Digital Disclosure Service. The detailed disclosure has to be made, using a HMRC template, within 90 days. This involves computing the tax due for each year covered by the disclosure, calculating the interest due on the unpaid tax. It is also necessary to calculate the penalties which would be due on the tax. In addition it is necessary to confirm the maximum value of assets held outside the UK at any point over the period of 5 years up to the date of the disclosure.
If the disclosure is correct and complete and full co-operation has been provided in the event that HMRC request further information, then HMRC will not impose a higher penalty. However if the disclosure is incomplete or inaccurate, HMRC may charge a higher penalty. They can also open a civil or criminal investigation and can publish the taxpayer’s details on the HMRC website. Payment of the tax, interest and penalties must be made when the disclosure is submitted. If it is not possible to pay the liability at the time of making the disclosure then HMRC must be contacted before the disclosure is submitted to agree payment arrangements with HMRC.
Whilst there are no concessions under the WDF, the severe penalties which will be imposed in respect of offshore tax evasion which will take effect under new rules in 2018 should serve as an incentive to use this disclosure opportunity.