If you’ve received an HMRC 'nudge' letter or wish to regularise any undisclosed offshore income, you may need to make a disclosure using HMRC’s Worldwide Disclosure Facility (WDF). Here’s what you need to know about the WDF and how we can help bring your tax affairs up to date.

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The WDF is an HMRC digital service allowing taxpayers to disclose offshore non-compliance in relation to their overseas interests. Any individual, company or trustee can make a disclosure through the WDF, including those who are non-UK resident.

Why disclose under the WDF?

Under the Common Reporting Standard (CRS), HMRC receives financial information from over 100 different countries. This information is used to check against the declarations made by UK taxpayers to identify potential offshore non-compliance. An example would be where a taxpayer has filed tax returns containing inaccuracies in relation to offshore irregularities. Or where a taxpayer has failed to notify chargeability to tax, and hasn’t filed a tax return declaring offshore income, profits and/or gains.

By making a disclosure through the WDF, you’ll have more control over the process, and you’re likely to reach a settlement quicker than if HMRC were to open an investigation. This is because you determine the potential lost revenue, the behaviour that led to the offshore non-compliance, and the level of tax-geared penalty.

What is an HMRC ‘nudge’ letter regarding offshore non-compliance?

The purpose of an HMRC ‘nudge’ letter is to prompt taxpayers to review their UK tax affairs in relation to their overseas interests, and correct any irregularities voluntarily by submitting a WDF disclosure.

What should you do if you receive a ‘nudge’ letter?

Firstly, do not ignore the letter. It’s likely that HMRC has information regarding your offshore interests and suspects there are irregularities in your UK tax affairs. To ensure you’re fully compliant, we would suggest you consult an expert in determining offshore non-compliance. We assist our clients by conducting a full review of their onshore/offshore tax affairs so we can advise on the best response to the HMRC ‘nudge’ letter, and whether a disclosure will be required.

Does a nudge letter always mean I owe tax?

No. However, HMRC tends not to pursue individuals or businesses unless it has information suggesting something is wrong with their tax affairs. Therefore, if you receive a nudge letter, it likely means that HMRC has noticed something about your tax filings that raises a red flag. Finding issues within your tax affairs can be complicated and our tax investigation specialists can help you identify any irregularities and disclose those via the Worldwide Disclosure Facility.

Do I have to report all offshore income/gains?

It’s not necessary to report income or gains that:

• Total less than the unused annual exemption or/or unused personal allowances

• Constitute dividends that are less than the unused dividend allowance or

• Constitute interest that is less than the savings unused allowance

Keep in mind that if you review past tax years, it’s possible you will uncover potential tax reliefs you had previously overlooked. In such a case making a full disclosure to HMRC via the WDF could potentially result in a net repayment for you, provided you are still in time to make such reliefs.

How do I make a notification and disclosure to HMRC?

First off, you must inform HMRC of your intention to make a WDF disclosure. You should do this as soon as you become aware of tax owed on any of your offshore income or gains. Individuals can make a disclosure about their own taxes, about their company’s taxes, a trust or estate, or on behalf of someone else. We can help you make a disclosure statement for yourself, your business or other income generating entity.

What do I have to include on the disclosure form?

Any disclosure detailing offshore liabilities will need to include the following:

• Your disclosure reference number (DRN).

• Whether the disclosure was prompted by a letter from HMRC.

• In what capacity you’re completing the disclosure form.

• If you’re disclosing for someone else, who are you disclosing for?

• Your contact details if you’re disclosing for someone else.

• You must confirm that you are making a full disclosure.

• And acknowledge you understand that a false disclosure could lead to prosecution.

At Buzzacott, all outline disclosures for our clients have been accepted by HMRC as being valid and we strongly recommend you seek specialist professional representation.

What is the WDF process?

1. Registration – This notifies HMRC of your intention to make a WDF disclosure. Within 15 days, HMRC will confirm receipt and issue a disclosure reference number (DRN). Should you register for the WDF unprompted by any HMRC intervention or ‘nudge’ letter, then your ‘unprompted’ status is protected, meaning potential lower penalties.

2. Disclosure – The WDF disclosure must be submitted within 90 days of HMRC having confirmed registration and the DRN. The WDF disclosure should include:

• The unreported income and/or gains.

• The associated tax, interest and penalties.

3. Payment – this must be made at the time of submission, unless a time to pay arrangement has been agreed with HMRC.

Penalties

To encourage taxpayers to disclose offshore income, HMRC introduced the Requirement to Correct (RTC), giving taxpayers until 30 September 2018 to make a disclosure. WDF disclosures made after this deadline, when disclosing irregularities for tax years up to and including 2015/16, are subject to Failure to Correct (FTC) penalties. FTC penalties are significantly higher than standard offshore penalties, but can be reduced through submitting an unprompted disclosure, making it even more crucial to disclose irregularities as soon as you’re aware of them, and before HMRC nudges or prompts you to disclose.

The maximum penalty for a prompted disclosure under FTC is 200% of the unpaid tax. By submitting a full and accurate disclosure, an FTC penalty can be reduced to 150%.

The minimum penalty for an unprompted disclosure under FTC is 100% of the unpaid tax, provided the disclosure is full and accurate.

When disclosing irregularities for tax years after 2015/16, standard offshore penalties will apply. These penalties depend on the category of the territory your offshore interests relative to the disclosure falls under, as well as your behaviour, and if the disclosure has been prompted by HMRC.

Reasonable excuse

Under the RTC, harsher penalties will be charged, unless the taxpayer can show that they had a reasonable excuse for not disclosing irregularities by the 30 September 2018 deadline. These are the circumstances HMRC has stated will not constitute a reasonable excuse for not disclosing irregularities:

• An insufficiency of funds is not a reasonable excuse, unless attributable to events outside your control.

• Relying on any other person to do anything. That cannot be a reasonable excuse unless you took reasonable care to avoid the failure.

• Where you had a reasonable excuse but the excuse has ceased. You are only to be treated as continuing to have the excuse if the failure is remedied, without unreasonable delay, after the excuse ceased.

• Relying on advice in certain circumstances.

What are the benefits of disclosing via the WDF?

Voluntarily disclosing offshore income or gains via the WDF will result in a variety of benefits when bringing your tax affairs up to date. HMRC always prefer when people voluntarily come forward, as opposed to when they have to track them down/’nudge them’. By making a voluntary disclosure of undisclosed offshore income or gains:

• You take a proactive approach to correcting past errors or oversights.

• You demonstrate to HMRC that you take your responsibilities in this regard seriously.

• You may potentially reduce the number of years and associated penalties that might be assessed.

• You safeguard your reputation and ensure your personal freedom.

Why use a specialist to settle offshore matters?

1. Penalty reduction – With HMRC seeking 200% FTC penalties in WDF cases, a specialist can present compelling arguments for lower penalties based on the facts. Full disclosure and cooperation with HMRC through professional guidance can further mitigate penalties.

2. Time Limit complexities - Navigating the three behaviour categories (innocent, careless, deliberate) and the associated time limits (four, six, or twenty years) requires expertise. The recent 12-year time limit for certain offshore cases adds complexity. Our Tax Investigations & Dispute Resolution experts excel in understanding these complexities and ensuring that the correct tax years are assessed, with a view of minimising unnecessary tax, interest and penalties.

3. Criminal prosecution awareness - WDF does not offer immunity from criminal prosecution for tax evasion. Any disclosure involving tax evasion and fraud should always be dealt via the Contractual Disclosure Facility or Code of Practice 9. We’re well-versed in voluntary disclosures, assess the risks for each case and we’ll guide you on the best approach given the risks involved.

4. Global tax expertise - With experience in tax treaties and foreign tax credits, we analyse your tax liabilities outside the UK, assessing tax reporting in other countries to ensure proper credits and reductions for your UK tax liabilities under WDF.

How we can help

Buzzacott’s award-winning Tax Investigations and Dispute Resolution team can guide you through the WDF process. Our disclosure experts have a proven track record of assisting clients with offshore non-compliance matters. Should you choose to get specialist Tax Investigation advice from Buzzacott, we will:

• Conduct a review of your tax affairs to identify any issues that need to be disclosed.

• Register you for the WDF process.

• Prepare and submit a WDF disclosure that minimises your exposure to unnecessary tax, interest and penalties.

• Where appropriate, deliver a letter of representations to explain your position to HMRC to bring your disclosure to a swift conclusion.

• If needed, negotiate a time to pay arrangement that is affordable according to your needs and personal circumstances.

A very professional approach that the client and I am certain HMRC appreciate in terms of efficiency. In my case, Buzzacott’s approach has put my mind in a better state than before I approached them.

Accountant – Professional referral