On the 5 September, HMRC launched the WDF, which is set to run until 30 September 2018 when the Common Report Standard (CRS) comes into force. The facility is available to anyone (whether UK resident or not) who has undeclared income/gains arising from “offshore interests.”
The WDF is the last opportunity to regularise historic tax anomalies before the exchange of information under CRS commences. Over 100 countries have signed up to exchange information with HMRC, as early as September 2017. This follows the information to be exchanged from October 2016 on UK residents with offshore accounts in the Crown Dependencies and Overseas Territories. HMRC expect to receive unprecedented amounts of data concerning UK tax residents with overseas accounts/interests. Failure to act now could result in significantly higher penalties (up to three times the tax payable) or in more serious cases risk of a criminal investigation or even charges.
As part of the UK government’s commitment to crack down on tax evasion and non-tax compliance HMRC introduced a new criminal offence for offshore tax evasion in Finance Act 2016 effective from April 2017. The offence will apply where there is a failure to notify HMRC of a liability to pay tax, to submit a return or the submission of an inaccurate return. The offences will only apply to income tax and capital gains tax, although it is understood that this will be reviewed in the future. The offence will carry either a fine or six months imprisonment.
The new offence is a strict liability offence and crucially HMRC will no longer need to demonstrate that the taxpayer intended to evade tax; all HMRC need to show is that the taxpayer failed to notify HMRC of the offshore tax liability.
From a civil perspective, HMRC wish to introduce new stricter sanctions under the “requirement to correct” or “failure to correct” legislation currently subject to consultation. It is proposed that the new legislation will be included in Finance Bill 2017.
To bolster HMRC’s drive to tackle offshore tax evasion, HMRC have introduced a Statutory Requirement for advisers to notify clients of the International Exchange of Tax Information, effective from 30 September 2016. The obligation on advisers (includes banks, building societies, insurers, wealth managers or professionals that offer tax or financial advice or services) is to notify clients by 30 August 2017 about the information HMRC will be receiving from overseas jurisdictions in relation to offshore assets held by UK tax resident individuals. The purpose being to ensure anyone affected by the new legislation is aware of the new criminal offence for offshore tax evasion.
Advisers that fail to comply could face a fine of up to £3,000.
The notification letter to clients must be in a specific format (HMRC will be providing wording). The letter must not only advise clients of the information that will be exchanged under the CRS, but also the opportunities available to clients to make a disclosure and the potential sanctions if no disclosure is made and HMRC receives information regarding an undisclosed offshore asset that gives rise to a UK tax liability.
HMRC have also introduced the “corporate offence of failure to prevent the criminal facilitation of tax evasion”, whereby professional firms (corporates, LLPs and partnerships) that fail to prevent or enable tax evasion face being prosecuted.
WDF Key Facts
- The WDF is an online disclosure facility that utilises HMRC’s digital disclosure service (DDS). Individuals or agents can register on behalf of the person/entity making the disclosure.
- It is a streamlined process with no special terms and UK tax law applies.
- It covers all taxes including Income Tax, Capital Gains Tax, Corporation Tax and NICs. Inheritance Tax liabilities can also be disclosed going back 20 years or less.
- There is no immunity from prosecution, unlike the widely used Liechtenstein Disclosure Facility (LDF).
- The facility is open to anyone who has an overseas interest which gives rise to a UK tax liability, whether UK resident or not (subject to HMRC’s approval).
- The WDF also provides those with unreported income/gains from overseas the opportunity to disclose any onshore previously unreported income and/or gains.
- Once registered with the WDF the taxpayer has 90 days to make a disclosure.
- For complex cases and pre-disclosure agreements, HMRC provide a clearance process. Once the clearance process has been finalised, the taxpayer has 90 days from the date of the clearance to submit a full disclosure.
- Full payment of the total liability under the WDF needs to be made on submission. However, it is possible to seek a time to pay arrangement with HMRC before submitting the disclosure.
As well as the WDF, HMRC are simultaneously running campaigns whereby taxpayers can disclose previously unreported income/gains in relation to buy-to-let property, second incomes and credit card sales. The disclosure route taken depends on the person’s specific circumstances.
If you or your client’s are affected by the unprecedented changes in the exchange of information, act now to ensure that your/their affairs are in order. Where historical issues do arise, we can assist, especially in light of the draconian legislation aimed at severely penalising individuals who evade tax on previously unreported overseas income and/or gains.
It is essential that UK tax residents with overseas structures/interests act now to ensure that they are fully compliant for UK tax purposes before the new criminal offence comes into force in April 2017. UK resident non-domiciliaries should ensure that they have planned for the proposed changes to domicile coming into effect from April 2017. Similarly, individuals who previously used the Swiss/UK agreement to avoid disclosure of their overseas interests may wish to make a disclosure to HMRC before 30 September 2018.
What we can do to help
We have extensive experience of resolving complex tax matters involving offshore assets and structures. We can assist with the review of overseas structures to ensure they are UK tax compliant and advise on the best course of action for those with undeclared income/gains from offshore interests, which are reportable in the UK.
We can also provide support and advice on all aspects of making a disclosure to HMRC, ensuring a full disclosure is made based on prevailing tax law, and manage discussions with HMRC in order to reduce enquiries that could potentially escalate if the disclosure is not correctly handled.
Please contact John Hood on 0845 4900 509 for a confidential, no obligation discussion as to how the new legislation for offshore assets might affect you or your clients and how we can help.