World-wide Disclosure Facility- HMRC may allow additional time to comply and a clearance procedure

Mon 02 Oct 2017

The World-wide Disclosure Facility (WDF) is the only disclosure facility that officially remains open for settling arrears of tax with HMRC. Taxpayers may use the WDF to correct a past failure to pay income tax, CGT (but not non-residents’ CGT) or inheritance tax that should have been paid before 6 April 2017 in respect of an offshore issue, eg:

• income arising from a non-UK source;
• assets situated or held in a non-UK territory
• activities carried on wholly or mainly in a non-UK territory; and
• anything having effect as if it were income, assets or activities of a kind described above.

The key feature of the WDF is that it is only available in cases involving offshore defaults. WDF sits alongside the new Requirement to Correct (RTC) that is included in the second 2017 Finance Bill: both are operative until 30 September 2018, at which point new, more severe penalties will come into operation.

Penalties under Requirement to Correct

As the draft legislation currently stands in Finance Bill (No.2) 2017 new penalties will apply to pre-6 April 2017 offshore defaults that are not corrected by 30 September 2018:

• the maximum tax-geared penalty will be 200% of the under-declared tax; plus
• in addition, 10% of the value of the relevant asset; and
• there will be no mechanism for mitigation of the penalties based on behaviour, so anyone who fails to pay the correct amount of tax because of a careless error and does not remedy their offshore default by 30 September 2018 faces the same penalty scale as one who deliberately evaded tax.

What the WDF offers

Under the existing WDF, taxpayers who notify HMRC of their intention to use WDF are expected, within 90 days from notification, to:

• gather the information needed to make the disclosure;
• calculate all the tax, duty, interest and penalties due; and
• make full disclosure using the unique disclosure reference number (DRN) issued by HMRC on notification.

HMRC may then make enquiries to check and agree the notification and liability calculation are accurate. The 90 day deadline is tight which favours doing as much preparation as possible before triggering the WDF process. The ‘easy way’ isn’t easy but the hard way is going to get harder and costlier HMRC say that WDF offers more advantageous settlement terms but the terms are not softened compared to the present penalty régime and there are no guarantees e.g. of non-prosecution: using the WDF will at best be seen as cooperation with HMRC. The terms are only more advantageous than the post-1 October 2018 penalty régime.

WDF improvements

HMRC have added two new features to the WDF designed to assist taxpayers having difficulties meeting the 90 day deadline, especially in more complex cases requiring agreement or clarification on complex issues:

Additional 90 days

90 days to complete the WDF process will remain the norm but HMRC will now allow an additional 90 days in complex cases. Application for the additional 90 days is to be made by phone, so it will be interesting to see how much information will need to be given to satisfy HMRC that a case is “complex”.

Non-statutory clearance may offer longer extension

For cases involving complex issues that require HMRC’s clarification or agreement the Non-Statutory Clearance (NSC) procedure has been adapted and made available to WDF users who have registered online using the Digital Disclosure System (DDS). The big plus for this is that if NSC is used the deadline for concluding settlement under the WDF is extended to 90 days from the issue of the non-statutory clearance. This will put pressure on HMRC to turn round clearance applications quickly but also on taxpayers and agents to ensure that any application for clearance is well prepared.