UK taxpayers with offshore holdings are currently subject to new obligations, with significant sanctions if they fail to comply when required to do so.
HMRC has also launched the Worldwide Disclosure Facility (WDF) to enable taxpayers to correct past irregularities in advance of the new sanctions being introduced.
Requirement to Correct (RTC)
- Legislation was enacted in 2017 introducing a new legal obligation for those impacted to correct any issue in relation to their ‘offshore matters’ that gave rise to a UK tax liability also known as a “Requirement to Correct” (RTC).
- The correction of past tax irregularities had to be made on or before 30 September 2018.
- HMRC currently receives Common Reporting Standard (CRS) data (from circa 100 countries) which will allow it to identify and pursue those who have not come forward to regularise their affairs.
- Any person who is found to have failed to have corrected their affairs is subject to a new set of sanctions.
- For those who failed to correct by 30 September 2018 the penalty is 200% of the tax. This can be mitigated but no lower than 100%. An additional penalty of up to 10% of the asset and “naming and shaming” applies to the most serious cases where there has been a failure to correct. Those who have undisclosed assets or income should take advice and make a disclosure to HMRC.
- Anyone not absolutely certain their offshore affairs are compliant should review their position, take advice as appropriate and if required correct this. There are many common technical issues in relation to offshore assets which are relevant to RTC. For example:
- remittances from overseas income & gains;
- UK source income in offshore accounts;
- purchases of UK assets using foreign income;
- benefits from offshore trusts; and
- 10 year anniversary charges.
- Those who were subject to the one off charge under the UK Swiss Agreement (also called the Rubik Agreement) should ensure their assets/ income are ‘cleared’ and no tax liabilities remain. Non doms who were excluded from the one off charge and those with discretionary structures outside the scope of Rubik should also obtain certainty there are no areas of non-compliance to correct.
Worldwide Disclosure Facility (WDF)
- Opened 5 September 2016.
- Disclose UK tax liabilities that relate wholly or partly to an offshore issue. That is, income arising outside the UK, assets situated or held outside the UK, activities carried on wholly or mainly outside the UK or funds connected to a UK liability transferred outside the UK.
- No immunity from prosecution (need to consider Contractual Disclosure Facility on case by case basis, e.g. second offenders).
- 2 stage process using HMRC’s Digital Disclosure Service portal
- Within 90 days of date notification confirmed require to:
- Complete disclosure
- Pay tax, interest and penalties
- Requirement to self-assess behaviour to determine years to include in disclosure and level of penalties.
- Complex issues and pre disclosure agreement - in exceptional circumstances clarification can be sought from HMRC pre disclosure submission using the non-statutory clearance process.
- No statement of assets and liabilities – instead need to set out the maximum value of overseas assets at any point in the last 5 years.
- Onshore liabilities should also be disclosed if WDF is being used.
- HMRC to acknowledge disclosure within 15 days and aim to tell course of action within 40 days of this.
- HMRC will check disclosures and investigate if necessary.
Voluntary Disclosure Opportunity (VDO)
- This was announced on 5 September 2016.
- Open to those not able to use other campaigns to disclose.
- Deals with Income Tax, CGT, NIC, Corporation Tax.
- Format then essentially follows the WDF regarding the process, eg, use of the Digital Disclosure Service, notification, disclosure, payment on submission of disclosure
- Separate disclosures needed for PAYE, VAT, IHT etc (ie not through the VDO)
In addition to the WDF and VDO there are other disclosure routes and anyone contemplating a disclosure will need to consider the most appropriate route to take. KPMG has extensive experience advising those with a requirement to disclose issues to HMRC, particularly using the Contractual Disclosure Facility (CDF), otherwise known as Code of Practice 9 (COP9).
Please contact us if you would like to discuss the above in more detail.