- HMRC launches a new process from 5 September 2016 for voluntary disclosure relating to “offshore interests”
- Registrations must be made using an online portal but require careful professional advice regarding time limits, penalties and risk of prosecution
- This is a streamlined process with no special terms; all domestic UK tax laws will apply
- New global information sources mean HMRC no longer needs to offer beneficial terms to encourage voluntary disclosure
- A statutory obligation to correct mistakes or serious errors in UK tax is the subject of a separate but related consultation document called ‘Requirement To Correct’; this will give a strict timeframe for disclosures to be completed before 30 September 2018 to avoid new severe sanctions
- Not participating in the WDF will risk tough new civil sanctions and a risk of criminal action; including for advisers with the ‘corporation facilitation of tax evasion offence’
- This is a crucial window of opportunity for non-UK domiciled individuals who may need to disclose prior to the proposed changes in April 2017
- Individuals who have used the UK/Swiss Tax Agreement to avoid disclosure in the past may also need to use the new facility.
HMRC’s announcements are part of a series of consultation documents and proposed changes to UK tax law, all of which show the UK Government is as committed as ever to eradicating tax evasion and non-compliance. As expected, there are no favourable terms or amnesty.
The launch of the Worldwide Disclosure Facility (WDF) is interlinked with the Common Reporting Standard (CRS), the automatic information exchange of bank data from around the world and registers of beneficial ownership. The result is that HMRC simply does not need to offer incentives for disclosure now that it will shortly receive data from more than 100 countries.
HMRC will have more ammunition than ever before to investigate people who do not use voluntary disclosure opportunities. The huge challenge will be to raise awareness of the processes and implications of non-compliance because HMRC knows many people remain blissfully unware of the extent of data held by the UK Government regarding their personal assets. Awareness will increase if proposals in the consultation on the ‘Requirement to Correct’ go ahead from April 2017 which will create a statutory obligation to correct UK tax mistakes before 30 September 2018, whether through deliberate behaviour or innocent error. This is likely to involve advisers being forced to write to all clients with “offshore interests” and encourage them to make voluntary disclosure.
The new facility follows closure of all other disclosure opportunities at the end of 2015, including the widely used Liechtenstein Disclosure Facility (LDF). We see the World Disclosure Facility builds on our experience under the LDF of being able to bring an individuals’ UK tax affairs up to date using a benign process and via engagement with HMRC where necessary.
WDF is described as “the last chance” before tough new sanctions are applied including higher penalties, ‘naming and shaming’ and a risk of criminal investigation. The minimum penalty of 30% is higher than previous disclosure facilities such as the LDF which offered a capped 10% and 20% penalty. However, with HMRC consulting on a maximum penalty of up to 300% it makes voluntary disclosure an attractive option. Likewise there is no guaranteed immunity from prosecution but for those who come forward voluntarily, quickly and tell HMRC everything, it is highly unlikely that prosecution will follow. For some cases where professionals are linked to evasion, high profile individuals or people that have been through previous investigations, a Code 9, Contractual Disclosure Facility, may be recommended instead of the new facility and expert advice must be sought.
This is clearly a win-win solution for the UK Government and taxpayer, as much needed cash is raised for the Exchequer, while taxpayers get the certainty and ‘a line in the sand’ so they can sleep at night. We are pleased the process offers certainty through a contract settlement at the end of the disclosure which HMRC will formally accept so the historical tax position cannot be reopened unless there are false declarations or material omissions.
What is the process?
The timeframe for using the WDF is tight, with a 90 day deadline to make a full disclosure. Therefore careful planning and professional advice will be necessary to navigate the process. For complex cases, we welcome the introduction of a clearance process. While not wanting to pander to potential tax evaders, there are often complex tax points at stake and engagement with HMRC is important to reach the right answer.
Each disclosure must include detailed tax calculations which may look back up to 20 years and penalty proposals. As such, HMRC suggests that professional advice should be sought. A new move by HMRC is to make it a requirement of the WDF that you detail if you have reduced the tax amount payable in your disclosure and how you have done so; if this is not considered by an expert adviser then it could lead to further enquiries by HMRC. The existing law on ‘naming and shaming’ of deliberate tax defaulters must also be considered as it could be applied. Full payment needs to be made on submission of the disclosure although Time To Pay arrangements will be possible with upfront negotiation.
Who needs to know about this?
The design of these changes is to direct all voluntary disclosures for onshore or offshore issues to the Digital Disclosure Service (DDS). We welcome a permanent facility to drive tax compliance and encourage voluntary disclosure. Regarding the onshore campaigns, all disclosures should now use the DDS including current campaigns such as The Let Property, The Credit Card Sales and the Second Incomes campaigns.
Online portals may make tax disclosure look deceptively simple, whereas in fact there are many pitfalls including the number of years to include, the type of penalty to apply, anti-avoidance laws and the full range of tax charges that might be relevant. Also the invitation to participate in a ‘web chat’ with HMRC could be fraught with risk; it is a classic example of ‘you don’t know what you don’t know’.
What action is needed now?
These announcements are not only targeted at hardened tax evaders. The HMRC documents are explicit that anyone who has not paid ‘the right amount of UK tax’ whether through innocent mistake, outdated advice or ignorance should make a disclosure. For intermediaries, it is important to get up to speed with the latest HMRC developments and identify any relevant cases. Timing, cooperation and expert advice are all vital.
Please contact us for an initial review meeting to discuss specific circumstances and any disclosure requirements.
For further reading, the following links may be of interest: