Background to the facility
On 5 September 2016 HMRC launched the new Worldwide Disclosure Facility (WDF) for taxpayers to disclose non-compliance in respect of their offshore interests. Its launch linked to the implementation of the Common Reporting Standard (CRS) from 2017. Under CRS HMRC will receive taxpayer account information from over 100 countries. HMRC will also receive data from registers of beneficial ownership.
The WDF provides no special terms, representing a significant change of approach from previous HMRC offshore facilities, which offered beneficial terms to encourage people to come forward and clean up their tax affairs. Instead of offering a carrot, HMRC will apply a much bigger stick to those who do not come forward to regularise their affairs. HMRC has adopted this approach because it believes that, with the information it will receive from overseas countries, it will have the means to identify and investigate those who do not come forward.
The requirement to correct
The WDF launch is timed to coincide with the recent announcement of proposed Requirement to Correct (RTC) legislation. Under the proposed legislation due to take effect from April 2017, those who do not put their offshore tax affairs in order by 30 September 2018 will be subject to significantly increased sanctions.
Consequences of failing to correct
A failure to correct will create a situation where the taxpayer has committed an additional offence on top of their original non-compliance by not correcting within the window.
Under the simpler of HMRC’s proposed options, a standard penalty of 200 per cent of the tax not corrected would apply. Taxpayers could also face a further penalty of up to 10 per cent of the value of offshore assets, and naming and shaming depending on the circumstances.
Who could be impacted?
An FTC offence will arise no matter how or why the original error arose. HMRC is stressing that RTC is not just aimed at those who deliberately evade tax, but any taxpayers whose offshore tax affairs are not compliant irrespective of the reason.
The burning issue for taxpayers
The difficulty for taxpayers with offshore interests is that they are often those with the most complex tax affairs. As a result, as HMRC acknowledges, many may be unaware that they could have an issue. For example, an issue could arise because:
- the original advice received was incorrect;
- the original advice whilst correct, has been superseded by law changes or events; and
- the arrangements have not been implemented as envisaged in the original advice.
If a return was incorrect for any of these reasons the taxpayer would face the much harsher FTC penalty.
To avoid this possibility, HMRC is urging these taxpayers to seek professional advice and review their tax position, as this represents a final opportunity for them to ensure everything is in order; or to put right anything that may be amiss before HMRC toughen their approach.
RTC amounts to HMRC’s version of a stitch in time saves nine, unfortunately many taxpayers will not know a stitch is required without a closer look at their offshore arrangements.
For more information please get in touch with Andrew Hindsley or your usual RSM contact.