Put simply, HMRC and other tax authorities worldwide are getting tougher on individuals, trustees and companies not paying the right amounts of tax. They are increasing their focus on tax compliance both onshore and offshore in a bid to ensure all tax payers are paying the right amount of tax.
HMRC has more data sharing facilities than ever before and data is already flowing into the UK from sources such as the US FATCA arrangement, Crown dependencies and overseas territories arrangement. The introduction of the common reporting standard from September 2017 means data will also be flowing in from over 50 countries already signed up to the exchange of information agreement. In addition, HMRC can now collect and handle large amounts of data via their computer system ‘Connect’ which as the name suggest, connects with lots of external sources of information such as the land registry, banks and other financial institutions, the DVLA and many more. All this global and national transparency means HMRC has access to more data than ever before and is using this to ensure taxpayer compliance in all areas.
UK taxpayers with offshore interests will soon be subject to new reporting obligations with severe penalties if they fail to comply. To assist taxpayers in understanding their obligations and to offer a way to correct past irregularities HMRC introduced the Worldwide Disclosure Facility – WDF.
It opened on 5 September 2016 and runs until 30 September 2018. It has been introduced to enable taxpayers to disclose UK tax liabilities that relate wholly or partly to an offshore issue. That is, income arising outside the UK, assets situated or held outside the UK, activities carried on wholly or mainly outside the UK or funds connected to a UK liability transferred outside the UK.
Changing rules over recent years, particularly in relation to residence and domicile could now mean that even if you have taken advice in the past, this may now not be correct. As a first step, taxpayers with complex international tax affairs should review their position and, if need be, ask for a health check to be undertaken. If a disclosure is then required the WDF can be used.
To encourage and drive tax compliance this facility will offer taxpayers a final chance to clear up issues from the past and avoid the highest rate of penalties that HMRC can impose.
A key part of the WDF is known as the Requirement to Correct – RTC
The RTC requires taxpayers to disclose any outstanding UK tax related to offshore matters up to 5th April 2017. Taxpayers will have until the end of September 2018 to do this and if they do so, tax interest and penalties will be paid under the current rules. If this deadline is not met, additional penalties known as Failure to Correct penalties will be added to the settlement which will be a minimum of 100% of the outstanding tax. There will also be an asset based penalty for serious cases of 10% of the value of the asset on top of other penalties.
There are also separate further penalties which can be applied for offshore tax depending on the jurisdiction of the asset. This could be up to a further 200% of the tax not paid and depends on the jurisdiction of the territory.
Penalties generally under the disclosure agreements will be less severe if the disclosure is unprompted by HMRC and there has been no deliberate attempt to conceal the tax.
The message is therefore clear, if you believe you may have a requirement to disclose a previously undeclared source of income, either in the UK, overseas or both, you should use the current disclosure facilities available to ensure a better financial outcome and you should do it now. The penalties for being found out if you do not will be severe.
If you would like to discuss any related issues or need further advice or guidance please get in touch with Julie Walsh on Julie.firstname.lastname@example.org or 01254 679131