Offshore income and gains - Worldwide Disclosure Facility

To combat tax evasion, what is the Worldwide Disclosure Facility (WDF)? HMRC has heightened its attention on the "tax gap" and bolstered transparency among global tax authorities. Under the Organisation for Economic Cooperation and Development's Common Reporting Standard (CRS), over 100 countries have pledged to exchange information on a multilateral basis. Consequently, HMRC has been receiving extensive data on UK residents and taxpayers with foreign income and assets. In the case of offshore income gains, it is calculated as a gain on the disposal of a chargeable asset.

Consequently, it is imperative to ensure full compliance with your tax obligations, or you risk facing severe penalties from HMRC. A worldwide disclosure facility penalty calculator can be utilised to determine your liabilities.

What exactly is the Requirement to Correct (RTC)?

This legislation mandated that individuals with undisclosed overseas earnings must declare their tax obligations to HMRC by September 30th, 2018. It encompasses Capital Gains Tax, Income Tax, and Inheritance Tax for the relevant period. Those who failed to disclose offshore tax liabilities before the deadline are now subject to a stricter penalty regime known as ‘Failure to Correct’ (FTC).

Why opt for HMRC's Worldwide Disclosure Facility (WDF)?

The WDF allows anyone with UK tax liabilities related to offshore money, gains, investments, or assets to disclose them, either fully or partially. Seeking guidance from a tax advisor specialised in worldwide disclosure facilities can be invaluable. This encompasses:

• Income from sources outside the UK
• Assets held or located outside the UK
• Activities predominantly conducted outside the UK
• Transferring funds related to unpaid taxes outside the UK

But the big question...?

Is the WDF applicable to you?

Individuals wishing to make voluntary disclosures regarding offshore interests are eligible under the following conditions:

• Making a comprehensive disclosure of all previously undisclosed UK liabilities within 90 days of expressing intent to disclose.
• Determining the interest and penalties owed based on existing legislation.
• Complete reductions for disclosure may not always be appropriate, particularly if non-compliance persists over an extended period. Those who previously disclosed through HMRC’s offshore facilities shouldn’t expect full reductions.

Still with me...

What does the WDF process entail?

To utilise the WDF or make a voluntary disclosure, follow these steps:

1. Notify HMRC of your intention to disclose offshore income gains using the Digital Disclosure Service.
2. Upon notification, HMRC will provide a letter confirming registration, along with unique disclosure and payment reference numbers (DRN and PRN) to complete the process.
3. Complete the disclosure within 90 days of receiving this letter.
4. Determine the years for disclosing foreign income and gains based on the behaviour leading to non-disclosure (careless or deliberate).
5. Calculate tax liabilities annually, considering factors like personal allowance, tax bands, and foreign tax credit relief, with professional advice recommended.
6. Apply appropriate penalty rates based on behaviour and calculate late payment interest.
7. Submit the disclosure (letter of offer) to HMRC and settle the liabilities.
8. If HMRC accepts the disclosure, they’ll issue a letter of acceptance, closing the disclosure.

Seek professional advice due to the complexity of the rules, potentially saving on excessive tax and penalties.

Double Taxation Agreement (DTA): The UK has agreements with many countries to prevent double taxation. If a DTA applies, it may specify the country authorised to collect tax on various incomes.

Domicile and Remittance Basis: Your domicile status is critical for HMRC foreign income disclosure. Non-domiciled residents in the UK can choose the remittance basis, paying tax only on foreign income and gains remitted to the UK. Be aware of potential charges, particularly if you've been UK resident for seven of the last nine years.

HMRC's NUDGE Letter:

HMRC sends these letters to individuals with undisclosed offshore assets, seeking clarification on their tax affairs and urging disclosure. Ignoring these letters can lead to escalated enquiries. Respond promptly, seeking assistance from offshore accountants to ensure compliance and avoid penalties.

What if you haven’t received the HMRC letter?

The golden words - Don't wait. Disclose your tax liability promptly to potentially mitigate penalties and streamline your affairs. Seek expert advice to ensure compliance and anticipate future challenges from HMRC.

In conclusion, as information-sharing agreements like the CRS evolve, HMRC may continue issuing nudge letters and challenging taxpayers. Analyse your tax position, seek expert advice, and address any issues before HMRC inquiries. For queries or advice on the Worldwide Disclosure Facility, consult a tax advisor promptly.

Be informed, be vigilant.

Speak to one of our specialists at 03300 88 66 86 or email your queries on [email protected]