Requirement to Correct – Where the WDF started
This is where it all started.
The Worldwide Disclosure Facility (HMRC WDF) followed the Requirement to Correct (RTC) legislation. The RTC rules were HMRC’s last attempt using lower penalties, to encourage taxpayers with links to offshore assets and investments to review them and regularise any historic UK tax problems, by late 2018.
They put a new responsibility on taxpayers to ensure they were UK tax compliant, by that date, through making an offshore tax disclosure under the Worldwide Disclosure Facility (HMRC WDF).
In the past there have been more favourable offshore tax disclosure facilities / amnesties available, to facilitate the disclosure of historic foreign income and gains linked to offshore assets and investments. HMRC have since then been taking a much stronger stance against any taxpayers who, in their eyes, opted not to disclose voluntarily by late 2018 despite the opportunities published in the media and so discussed widely by tax professionals.
How HMRC uses the Common Reporting Standard data
With the introduction of the Common Reporting Standard (CRS) from 2017, HMRC’s ability to access rich, third party financial information from other jurisdictions increased significantly. These newer international data sources have enabled HMRC to more easily identify UK individuals who have not ensured their UK tax affairs were up to date. Which is what the HMRC WDF amnesty was made available to help correct.
HMRC repeatedly say they will not hesitate to prosecute individuals where appropriate. So given the complexity of the UK tax legislation and misconceptions around reporting foreign income and gains here, it remains vital for any person with any non-UK assets, income or gains to undertake a full review of their UK tax affairs. They must be aware that under the Common Reporting Standard, HMRC receive for example:
- account balances/values
- annual income
- annual gains on financial assets
What is the Worldwide Disclosure Facility (HMRC WDF)?
Who is the Worldwide Disclosure Facility for?
This is a targeted, streamlined disclosure facility for people, whether they are living in or outside of the UK, with foreign income or foreign gains, which should have been declared in their personal tax returns but was not. To be clear, an offshore issue (matter or transfer) includes underpaid or omitted tax relating to:
- income arising from a source outside the UK
- assets situated or held outside the UK
- activities carried on wholly or mainly outside the UK
- anything having effect as if it were income, assets or activities of the kind described
The CRS was created to provide a global framework which underpins all newer international financial accounts information exchange agreements. That means that it enabled over 100 jurisdictions to share rich financial accounts / banking data with one another, annually and automatically, without the need to make case specific requests.
Importantly, the Worldwide Disclosure Facility offers no ‘carrots’ or inducements like fixed low penalties and immunity from a criminal tax investigation, in the way that older offshore tax disclosure facilities did.
The WDF is a streamlined process through which offshore matters can be disclosed in a uniform way by those that are experienced in preparing and submitting them. The
- taxes
- interest
- penalties
that are payable, after factoring in all tax reliefs, exemptions, claims, elections and allowances, should be paid simultaneously so that cases are resolved more quickly by HMRC.
WDF Penalties Explained
The Failure to Correct (FTC) penalty regime is the newer offshore matters penalty regime, which has applied from 1 October 2018, for tax years up to and including 2015/16, so follows on from the RTC legislation. This is a punishment for not submitting HMRC WDF disclosures sooner.
Any person that did not ensure their historic UK tax affairs were corrected by 30 September 2018 have been subject to the newer FTC penalty rules. These are comparatively draconian, and some say they are disproportionate to the taxes due. The maximum FTC penalty is 200% of the tax payable, and is the starting point. The minimum FTC penalty is 100% of the tax payable.
Other new penalties / sanctions for offshore tax failures include:
- The Offshore Asset Move penalty, which in certain circumstances increases the offshore penalty payable by another 50%. So, an FTC penalty could be as high as 300% of the potential lost revenue (typically the additional taxes payable)
- The 10% offshore asset-value based penalty, which could apply in cases where the additional annual taxes payable are high enough
- Much easier public “naming and shaming”, whereby one’s name, address and details of the tax underpaid are published by HMRC. So for cases involving offshore taxes / foreign income and gains, HMRC don’t need to demonstrate the person deliberately did something wrong, it just needs to charge an FTC penalty (which is based on time elapsed). This information can be accessed by anyone online, and is published quarterly.
Whilst the older ‘offshore penalty regime’ resumes for the tax year 2016/17 onwards, one should now that these can be suspended in certain circumstances. This is something that we are adept at managing and securing for clients making an offshore tax disclosure.
Why should I use the Worldwide Disclosure Facility (HMRC WDF)?
The RTC and FTC provisions were designed to panic taxpayers into checking and correcting their UK tax affairs in relation to offshore assets, income or gains by 2018. The FTC penalty rules have continued till now, for tax years up to and including 2015/16. Also, the WDF has continued too, so that people can easily correct past tax problems.
The good news is that by making a voluntary disclosure under the terms of the Worldwide Disclosure Facility (HMRC WDF) one can achieve the new minimum FTC penalty, which is 100%. Otherwise, it cannot be less than 150% (e.g., you wait for HMRC to prompt/nudge/write to you about offshore assets). Also, by making a voluntary disclosure that means you will have a significantly better chance of avoiding other new penalties and sanctions, because you have been pro-active.
Given the complexity of the UK tax and penalties legislation, we strongly suggest that any person with non-UK assets, income and gains pro-actively undertakes a review of their UK tax affairs. They should ensure they are compliant with historic and current UK legislation (both in spirit and in substance) as soon as possible. They should consider making an offshore tax disclosure under the HMRC WDF rules ASAP if there are problems to fix.
See HMRC’s published guidance on making such worldwide disclosures: Make a disclosure using the Worldwide Disclosure Facility – GOV.UK
From our experience, more and more taxpayers seek independent advice from offshore tax disclosure specialists after receiving ‘nudge’ or enquiry letters from HMRC pointing out that they have lots of offshore banking data at their disposal now. This is because they understand the nuances around tax assessing time limits, penalty mitigation factors, and how to approach making estimates and assumptions reasonably.
The take home message remains the same, that people who waited for HMRC to contact them, had lost the ability to make wholly voluntary Worldwide Disclosure Facility disclosures. Therefore they were unable to secure the minimum FTC penalties (100%). Instead, they were charged between 150 – 200% penalties, and any arguments around suspending offshore penalties for later years were more robustly defended by HMRC.
How can I make a WDF disclosure?
You can voluntarily register your intention to make a WDF disclosure online via the Digital Disclosure Service (DDS) or by calling HMRC. Tax disclosure specialists can help do this too through their Agent portal. You will need:
- your name
- your address
- your National Insurance number, known as a ‘NINO’
- your Unique Taxpayer Reference, known as a ‘UTR’
- your date of birth
- the name, reference and contact details of any agent acting for you
HMRC usually take a few weeks to check whether there is any reason to block the registration, e.g. there is a serious investigation ongoing. After that they will write out to confirm your registration and issue a Disclosure Reference Number (DRN), explain that they expect the full disclosure to be made within 90 days. You will have to:
- gather the underlying banking and other information needed to fill in your disclosure
- calculate the final liabilities including the taxes, interest and penalties (as above)
- complete your disclosure online, and follow-up as necessary too
HMRC encourage making a Payment on Account too because this helps reduce the overall interest payable.
The offshore tax disclosure is submitted using HMRC’s Digital Disclosure Service and should be followed up by email and/or letter with the detailed disclosure report and tax / interest / penalty calculations etc to support the disclosure’s credibility, accuracy and completeness. Failure to follow these steps usually results in HMRC writing out for more information and thus becomes like an enquiry. HMRC should not have to second-guess where and why estimates were used and how any assumptions were made.
After submission, HMRC will send an acknowledgement letter, usually within 15 days of receiving your completed WDF disclosure. They aim to have reviewed that disclosure within 90 days of that acknowledgement, and issue an Acceptance Letter or ask questions to verify information and calculations used in the disclosure. In practice, HMRC are usually much quicker.
How can I get more time or help with my WDF disclosure?
Some offshore tax disclosures are complex, and so they need more time. Tax disclosure experts can explain that to HMRC and they extend the submission deadline without the need to panic. HMRC don’t give advice though, so remember that you will need to deal with the complexities of the disclosure yourself or by using tax disclosure specialists. For example:
- There may be multiple jurisdictions involved, therefore e.g. investment interest has arisen in several countries, which means the penalties payable on the corresponding taxes will be different.
- There are likely to be multiple tax years involved, therefore the Failure to Correct penalties will need to be included as well as the Offshore Penalties.
- Also, the number of tax years to include in the disclosure is not easy to conclude, because where tax returns have not been filed but should have been, the Failure to Notify rules apply and HMRC can go back up to 20 years. Where tax returns were filed but were incorrect, then the reasons for errors must be explained and then the number of years can be restricted.
- In other situations, the underling banking data and/or business records required to calculate the additional taxes due might be missing or impossible to obtain due to how old those tax years are. Reasonable estimates will be required and explanations made to help HMRC accept them. Also, there are sometimes alternative records that can be identified and collated to help complete the disclosure more robustly.
How much tax, interest and penalties have HMRC secured to date?
| Tax Year Ended | Total Tax | Statutory Interest | Penalties | WDF Total |
| 2016 | £995,598 | £142,590 | £106,642 | £1,244,831 |
| 2017 | £25,469,102 | £4,510,624 | £3,238,601 | £33,218,328 |
| 2018 | £81,267,286 | £9,885,174 | £9,279,856 | £100,432,317 |
| 2019 | £129,578,030 | £20,569,685 | £20,774,308 | £170,922,024 |
| 2020 | £79,222,510 | £11,576,952 | £12,918,756 | £103,718,218 |
| 2021 | £48,995,945 | £4,380,074 | £16,327,984 | £69,704,003 |
| 2022 | £57,167,247 | £5,419,231 | £16,590,789 | £79,177,267 |
| 2023 | £103,718,218 | £4,073,036 | £9,840,354 | £73,917,055 |
| 2024 | £62,723,611 | £7,571,872 | £12,068,745 | £82,364,228 |
| 2025 | £75,751,029 | £13,163,398 | £12,042,106 | £100,956,533 |
| 2026 | £59,807,996 | £11,627,196 | £31,693,036 | £103,121,667 |
| £918,772,039 |
How can we help with your WDF disclosure?
We believe it’s in a client’s best interest to discuss these types of matters with an ‘independent specialist’ even if there are no tax discrepancies to disclose. The right help at the right time ensures that HMRC are effectively managed and enquiries and disclosures are concluded expeditiously.
Our team understand tax disclosures and assist our clients with many of these, all the time, because we have considerable experience of managing them. Our founder, Amit Puri was the Head of a Disclosures team at HMRC between 2010 – 2013. So we know how to:
- prepare robust disclosures,
- reasonably explain any estimates included and assumptions that might be required,
- understand the strict tax assessing time-limits, and
- mitigate the various penalty regimes.
Get in touch to learn more about how Amit and the Tax Investigations and Disputes team have successfully guided clients through the HMRC WDF disclosure process, and COP9 or COP8 investigation processes as well.
Learn more about how we have helped our clients through their kind feedback here.
HOW CAN PURE TAX INVESTIGATIONS HELP?
At Pure Tax our Tax Investigation & Disclosure specialists are industry recognised and have dealt with hundreds of contentious situations with HMRC over the years. We are adept at managing interactions with the tax authorities to ensure that the investigation and disclosure processes run smoothly and that your interests are best protected.
