The WDF came into effect on 5 September 2016. In essence, the WDF was an initiative created to prevent tax evasion by using offshore accounts and investments. The WDF consists of over a 100 countries that monitors, tracks and shares information regarding offshore income.
Do I Need to Be Worried About WDF?
No. You should not be worried about WDF. However, you should be aware of who the WDF is, what they do and your responsibilities if you are currently making an income from an offshore account or investment.
A good summary of who needs to be aware of HMRC Worldwide Disclosure Facilities are listed below:
- Any type of unpaid or omitted tax arising from offshore income, assets or activities for the tax years up to and including 2019 / 2020 tax years.
- Unpaid or Omitted tax from income occurring from outside of the United Kingdom
- Unpaid or Omitted Tax relating to assets outside of the United Kingdom
- Unpaid or Omitted Tax relating to activities and business practices conducted outside of the United Kingdom
- Funds connected to unpaid UK tax that were transferred or owned outside the UK
If you are receiving any type of income, or owning assets that are situated outside of the UK, and you have not paid taxes on them, you need to continue reading this article to see what you can do to rectify the situation.
Types of Disclosures
It is important to note that there are two main ways to make a disclosure, namely voluntary disclosure or Prompted Disclosure:
Voluntary disclosure means you contact the HMRC prior to any letters or notifications from the HMRC Worldwide disclosure facility. You benefit in this case as the penalties may be lighter due to your diligence and proactiveness in attempting to resolve unpaid tax issues. This type of disclosure has a standard penalty of 200% PLR (Potential Lost Revenue), however a minimum PLR of 100%. Therefore, it is favorable to voluntarily disclose to the HMRC before they contact you.
Prompted / Non-Voluntary Disclosure
The HMRC have been continuously sending out letters as of 2020 to individuals that are classified as “at-risk”. These letters are referred to as “nudge” letters and serve as an opportunity for individuals to send in documentation of having all tax affairs in order, or to disclose any unpaid or inaccurate tax payments. This type of disclosure has a standard of penalty of 200% PLR (Potential Lost Revenue), however a minimum PLR of 150%. This means it is at least a 50% higher penalty than when voluntarily disclosed.
How to Make Voluntary Disclosure
It is recommended that you make a voluntary disclosure as soon as you realise there may be discrepancies in offshore tax paid, or any unpaid taxes relating to international income. The HMRC is more likely to rule on lighter penalties on those who voluntarily disclose.
Step 1: Reach Out To Your Accountant
According to Article 6 of the European Convention on Human Rights you have the right to seek out a professional advisor. An accountant can assist you in sorting through your finances and helping you to possibly lower the penalties paid. A professional accountant is up-to date with all the latest processes, procedures and legislation regarding the Worldwide Disclosure Facility and can assist you in understanding the process.
Consider the accountant’s advice and service offering to decide whether you want to go ahead and disclose yourself, or use the services of a qualified accountant to handle the disclosure process for you.
Step 2: Register for Digital Disclosure Service (DDS)
Visit the Digital Disclosure Service Portal and register. You will need the following information to register:
- Full Name
- Physical Address
- National Insurance number
- Unique taxpayer reference, known as a ‘UTR’
- Date of Birth
- Name, reference and contact details of any agent acting on your behalf (if applicable)
If you are making use of a tax advisor, you can complete form COMP1a to authorise HMRC to deal with your tax advisor directly.
Step 3: Documentation and Calculation
We highly recommend making use of services like CIGMA Accounting for this part of the process as it can be time intensive and require knowledge of current legislation and procedures. You have 90 days to do the following:
- Gather all information you need to fill in your disclosure
- Calculate the final liabilities including tax, duty, interest and penalties
- Fill in your disclosure, using the unique disclosure reference number (DRN) provided by HMRC
The HMRC has the right to ask for any additional documentation to support the disclosure.
Step 4: Wait for Feedback
The HMRC will acknowledge the receipt of your disclosure within 15 working days. It can take up to 90 days thereafter to inform you of the intended course of action.
I Got a Letter from HMRC WDF, what now?
Okay. Don’t go into a full-on panic mode. There are a few simple steps to follow if you’ve received a letter from the HMRC regarding the Worldwide Disclosure Facility. Let’s look at what you can do:
Step 1: Know The Process
You’re here, so we’re assuming that you are gathering information about what this is all about. That is good! We hope that you have a better understanding of what the HMRC WDF is and why it was established.
Step 2: Contact HMRC
Information is power. Contact HMRC to find out whether the letter is referring to any specific assets, income or activities. While they are not obliged to offer any information to you, if they do, it can narrow down the review of your tax affairs.
Step 3: Speak to a Tax Advisor
Make use of a tax advisor or accountant to investigate any and all offshore activities to ensure that there are no problems. Work collaboratively with your advisor to determine exactly what needs to go on the disclosure forms.
Note: A declaration is a legal document. Therefore, a false declaration is a criminal offence. Therefore, it is important that you have an advisor and know the process before making any disclosure to the HMRC.
The Good News
As mentioned at the beginning of the article CIGMA Accounting has a 99.9% success rate when it comes to Worldwide Disclosure Facilities. That means 99.9% of our clients did not pay ANY penalties.
While it can be daunting, it really isn’t something to lose sleep over if you have an accountant and tax advisor working on it on your behalf.
So if you’ve gotten a HMRC letter, reach out to us! We can help you.