Worldwide Disclosure Facility

The Worldwide Disclosure Facility (WDF) offers taxpayers the opportunity to disclose a historical UK tax liability relating wholly or partly to offshore non-compliance.

Examples of items disclosed under the UK WDF include, but are not limited to, regular foreign pension income; foreign rental properties; and foreign brokerage accounts for which the income generated is taxable primarily in the UK for UK residents. It is often the case that taxpayers are unaware that they should be reporting such income in the UK.

On 31 December 2015, HMRC closed all its existing offshore facilities to make way for the introduction of the WDF in September 2016. The WDF marked the beginning of a tougher approach from HMRC regarding unreported foreign income.

The “Failure to Correct” (FTC) legislation, introduced after 30 September 2018, brought potentially significantly higher penalties of up to 200% of the tax due (plus potentially asset-based penalties) for taxpayers with unreported income for tax years up to 5 Apr 2016.

By using the WDF to voluntarily approach HMRC, the potential tax penalties imposed can be much less severe than those resulting from an HMRC investigation. However, they may still exceed 100% of the tax due. Interest on any unpaid tax must also be paid. Different penalty regimes may apply, depending on the years the disclosure relates to, the severity of the failure to report, and the quality of the submission.

Depending on the facts and the circumstances, you may be required to report undisclosed income for four, six, or twenty UK tax years. However, for certain offshore cases a twelve year time limit applies.

Submissions made under the UK Worldwide Disclosure Facility are reviewed on a case-by-case basis and may be subject to negotiation with HMRC regarding an acceptable settlement figure.

The process for making a WDF submission is as follows:

• Determine for which years (if any) a disclosure is required. You should contact a tax professional to help determine this.
• Register intent to make a full disclosure with HMRC for the years in question under the online Digital Disclosure Service (DDS). Within 15 days, you will receive confirmation of your intent to disclose unreported foreign income from HMRC. At this point, HMRC may issue separate notices to file tax returns for some of the years in question. These returns can be submitted in the normal way and do not need to be included as part of your disclosure.
• Calculate the amount owed, including penalties. HMRC does not provide strict instructions on how to apply the penalty rules; it is up to you (or your tax preparer) to determine an acceptable offer based on the penalty guidelines set out in HMRC legislation. You will also need to calculate interest due on the balance.
• Make your payment and submit disclosure. You will have 90 days from the date of HMRC’s initial acknowledgement letter to make your disclosure and payment of the calculated liability. As part of this submission, you will need to include your full tax calculations for the years covered by the disclosure, along with an overview of the maximum value of your offshore assets held at any point over the previous 5 years. You will be required to submit a detailed offer letter explaining the facts and circumstances leading to your submission, along with the final amount determined as being owed.
• Wait for HMRC response. HMRC will usually acknowledge receipt of the disclosure within two weeks. The WDF department aims to provide a formal response to the disclosure within 90 days.

HMRC may make inquiries to verify the information you have provided or inform you that they disagree with your offer. In such a case, you will need to reach a resolution on an acceptable amount payable. If HMRC accepts the terms of your offer letter, you will be up to date with your UK tax filing.

We can help with all aspects of the WDF process, including advising on the relevant tax years to disclose, making the initial disclosure, preparing tax calculations, proposing penalties, and preparing the final submission documents.

WDF FAQs:

Q: I have never filed UK tax returns before. Do I need to make a disclosure?

Every situation must be reviewed on an individual basis to determine the necessary filing requirements and/or optimal method of filing. In some cases, HMRC may issue a notice to file returns for some prior years, which will supersede the requirement to disclose via the WDF for those years. We recommend that you contact us for advice before making any approach to HMRC.

Q: Can I not just file tax returns now as normal for the years that I missed?

This is not an approach we would recommend, as the potential penalties are higher than those that may apply by going through the WDF. Additionally, the Self-Assessment system only allows returns to be filed for the last four years. Therefore, if you have issues relating to earlier years, they may not be corrected by simply filing tax returns. If a tax return submission prompts HMRC to investigate other years and deficiencies are found, the minimum penalty charged would be 150% of the tax due.

Q: I have already filed my tax returns for prior years. Can I amend these?

There is a one-year time limit from the original filing deadline date to submit an amended return. If you need to make a disclosure via the WDF after this period, you will only owe penalties on the additional tax due.

Q: I have unreported UK income. Can I still use the WDF?

The WDF is designed to deal with matters related to offshore non-compliance. If you have unreported income from the UK, this should be reported through a separate facility (e.g., the Let Property Campaign for landlords with unreported UK rental property income), by filing missing returns (if within the four-year Self-Assessment window), or by contacting HMRC.