HMRC has announced this is a final opportunity for taxpayers who wish to make a disclosure of any tax evasion arising from offshore income, profits and gains. It can also be used to regularise tax evasion arising from UK only matters provided there are offshore matters to be resolved as well. In practice, however, it appears that the WDF can also encompass what HMRC perceives to be tax avoidance connected to offshore matters.
Why should a taxpayer use the WDF?
HMRC makes it clear that there are to be no favourable terms and one wonders why taxpayers should use the WDF to make a disclosure. HMRC’s response is that, following the closure of the WDF, the information it will automatically receive under the International Common Reporting Standards (CRS) will be used against those who have failed to come forward to carry out civil investigations, charge higher penalties or criminally prosecute.
HMRC encourages taxpayers to consult advisers
In HMRC’s published guidance there are many instances where taxpayers are encouraged to consult advisers because of the complexities and judgement calls required to be made in making a complete and accurate disclosure.
HMRC has also announced that, under WDF, for tax evasion it will be seeking a minimum penalty of 30% of the tax due. For certain disclosures, it will investigate either to reach a financial settlement or with a view to a criminal prosecution.
Any disclosure will need to ensure penalties are correctly computed however this regime has changed over the years and is now a complex issue in its own right. Schedule 24 Finance Act 2007 introduced a change to the penalty regime, which is now based on behaviours that gave rise to the understated tax. It was subsequently amended by Schedule 10 Finance Act 2010, which introduced higher penalties of up to 200% of the tax liabilities connected to offshore matters.
What is the time limit for making a WDF disclosure?
Full details of the disclosure are required to be made within 90 days of acceptance into then disclosure facility but this may not be sufficient to make a disclosure where matters are complex, which could therefore be problematic. HMRC has accepted however that for complex issues, clearance can be sought and the 90 day time limit will commence from when application for clearance has been finalised.
Limitations of the WDF
Under previous disclosure facilities, provided a complete and accurate disclosure was made, HMRC would not seek to criminally prosecute a taxpayer and it would not name and shame the taxpayer.
Whilst in our view it is correct for HMRC to seek to criminally prosecute those who have submitted an incomplete or inaccurate disclosure of their tax liabilities, it is disturbing to note that ‘HMRC reserves complete discretion to conduct a criminal investigation in any case and to carry out these investigations across a range of offences and in all the areas for which the Commissioners of HMRC have responsibility.’
This does not appear to be in the public interest as it is likely to deter taxpayers wishing to make a disclosure fearful of finding themselves subject to criminal prosecution. In any event, it is for HMRC as the prosecuting authority to prove beyond all reasonable doubt that a taxpayer has committed a criminal offence and that under Article 6 of the Human Rights Act they have the right not to incriminate themselves, for example by way of making a disclosure to HMRC.
HMRC’s published guidance advises that, in certain circumstances, full reduction of disclosure may not be appropriate. The implications of this are that any taxpayer whose tax liabilities arising from deliberate and/or concealed behaviours exceeds £25,000 will in some circumstances be named and shamed as well as asked to make a financial restitution.
Are there any alternatives for taxpayers wishing to make a disclosure?
As an alternative to WDF, taxpayers who have evaded tax might consider applying to make a disclosure under Code of Practice 9; Contractual Disclosure Facility (COP 9) as this guarantees immunity from a criminal prosecution provided a complete and accurate disclosure is made to HMRC. This gives a real benefit over the WDF in the appropriate circumstances.
For taxpayers who do not have any tax liabilities arising from offshore issues, they can still approach HMRC to make a disclosure. HMRC has other disclosure facilities known as campaigns including second income and let property, which could be used to make straightforward disclosures. For more complex cases, it is worth seeking expert tax advice as to the best way of making a disclosure.
A version of this article originally appeared on our Let's Talk Tax blog.