The Worldwide Disclosure Facility (WDF) has been operational since 5th September 2016 and will end on 30th September 2018.
The WDF allows companies and individuals to disclose a liability for UK tax related to an offshore investment, or financial accounts, such as income from sources outside of the UK, assets held or situated abroad, and the international transfer of funds which are connected to unpaid tax.
The period of the WDF is covered by Requirement To Correct (RTC) legislation which came into force with the Finance (No2) Act 2017. For careless, unprompted disclosures, the penalty imposed is likely to be between 0 – 10% provided that HMRC receives full disclosure and cooperation. In deliberate behaviour cases, the penalty is likely to increase to 20 – 30% of the unpaid taxes. Making a disclosure can be complicated, so it always best to seek professional financial advice if you have undisclosed and untaxed foreign earnings or assets.
However, from 30th September, HMRC will impose tough penalties for Failure to Correct (FTC). These penalties start at 200% of the underpaid tax. However, if you provide full cooperation and disclosure and can prove mitigating circumstances, the penalty may be reduced to the minimum of 100% of the underpaid tax. Under FTC, it does not matter if the historic tax liabilities are a result of human error, fraud, or carelessness, as the penalty is for failure to correct rather than for the original offence. FTC also has very tight restrictions in place when it comes to claiming ‘reasonable excuse’ for non-compliance. For example, under FTC, you will be much less likely to be able to rely on the fact that you took professional financial advice in relation to your offshore planning,
If HMRC determines that tax has remained unpaid as a result of a deliberate act of evasion by an individual, company or trust, which has moved assets from one jurisdiction to another to avoid tax, and you haven’t made a voluntary disclosure, the initial basic penalty can also be supplemented by a secondary one, of up to 50% of the initial penalty.
In the most serious cases, HMRC can also impose a penalty based on an asset which is limited at up to 10% of its value. If the value of the tax owed exceeds £25,000, the individual concerned may also be ‘named and shamed’ by HMRC. These new penalties will apply retrospectively to all past tax, not just those tax years following after the RTC. If you are hoping to hold out until old tax years pass out of the window in which HMRC will assess them, you need to be aware that the new rules freeze the time limits. This means that any tax which was assessable on 6th April 2017 will remain so for another 4 years until 5th April 2021.
If you have undisclosed historic tax liabilities, it is advisable that you seek professional advice so any necessary disclosure can be made before the 30th September 2018 deadline. If you would like further information and advice about the potential impact of recent changes to tax laws, contact the team at BHP today.