The Worldwide Disclosure Facility (WDF) is a new HMRC scheme aimed at encouraging taxpayers to come forward about unreported offshore tax liabilities. Launched on 5 September of this year, WDF is designed for taxpayers who want to disclose UK tax liabilities that wholly or partly relate to offshore income or assets.

WDF continues the work of previous disclosure schemes, but WDF is a change in HMRC’s approach. Some notable changes include:

• Territorial Scope – WDF is a catch-all scheme and widens the scope to offshore tax liabilities from all countries. This is in contrast to previous disclosure schemes which focused on specific countries.

• Penalty regime – To encourage uptake, previous disclosure schemes typically offered a reduction in penalties. WDF does not offer a penalty reduction but does allow taxpayers to self-assess the amount of penalty. The self-assessment method falls within the usual HMRC penalty model and therefore can allow 0% penalty rate. It remains to be seen how hard HMRC will scrutinise the self-assessed penalties.

• Reporting Timeframe – WDF requires registration with HMRC, and full disclosure must be made within 90 days of registration. This a marked change from the 10-month timeframe under the now closed Lichtenstein Disclosure Facility.

• Number of Years Assessed –  WDF follows HMRC’s behaviour based approach to determine how far back the disclosure should be:

• 4 tax years if you took reasonable care
• 6 tax years if you failed to take reasonable
• 20 tax years if you deliberately failed to report

The behaviour is also self-assessed and, in case of challenge by HMRC, we strongly suggest seeking professional advice with this area.

From next year, WDF will operate alongside HMRC’s proposed Requirement to Correct regime.  HMRC announced a consultation on Requirement to Correct this month, and WDF may be absorbed into Requirement to Correct.

HMRC have not explained why they consider these new schemes are necessary, but what is clear is that HMRC has invested in their disclosure schemes with a view to modernising them. We can conclude that HMRC considers unreported tax liabilities as a new frontier in closing the tax gap.

This is particularly relevant for US citizens, living in the UK, because there is often confusion about how US and UK taxes interact. It is not uncommon for US citizens to incorrectly assume they do not need to report all their worldwide income and gains to HMRC. This is not necessarily the case.

If you think you have undisclosed UK tax liabilities, please speak to your US Tax & Financial contact and they will arrange a time to discuss the matter fully.

If you are not a client of ours, please contact Helena Turner who will be happy to discuss how we can help.

Please see our subsequent post on RTC.