What is the Worldwide Disclosure Facility (WDF)?

The WDF is an HMRC digital service allowing taxpayers to correct any tax irregularities in their affairs where overseas income or gains remain undeclared.

HMRC has increased its focus on the ‘tax gap’ and ever-increasing transparency between global tax authorities in an attempt to recover lost tax. The annual exchange of financial information across several countries has been accelerated by the Common Reporting Standard (CRS), which has been adopted by over 100 jurisdictions.

In addition, HMRC’s ‘connect’ software also allows the collection and analysis of millions of lines of data. As such, the information received by HMRC is used to check against the declarations made by UK taxpayers to identify potential offshore non-compliance.

It is, therefore, important to ensure that the respective UK taxes on your offshore assets have been correctly declared and paid or you could face severe penalties from HMRC.

The WDF can be used to make both voluntary and prompted disclosures of historically unreported offshore income and gains.

HMRC have recently been sending ‘nudge’ letters to prompt taxpayers to review their UK tax affairs in relation to their overseas interests and correct any irregularities voluntarily by submitting a WDF disclosure. If you have received a copy of the letter, then it’s likely that HMRC has information regarding your offshore interests and suspects there are irregularities in your UK tax affairs.

There is a two-step process whereby an initial notification of intention to make a disclosure is made to HMRC. HMRC will then issue a disclosure reference number, which triggers the start of a 90-day window to submit the disclosure and pay the tax, interest and penalty calculated as due.

There is a common misconception that income and gains earned and taxed overseas are not taxable in the UK. The rules concerning offshore matters have changed significantly over recent years and numerous anti-avoidance legislations have been introduced aimed at offshore trust structures and overseas property structures. The fact is that even simple financial structures may seem complex; hence expert analysis is required. Even calculating rental income and expenses using UK tax rules can produce a different answer compared to the country of origin.

The good news is that if you have paid tax in a country outside of the UK, you may well be entitled to claim a credit to reduce any further UK tax liabilities through the WDF. This, however, requires analysis of the double tax agreements between countries to understand where credit can be claimed.

On the other hand, it may also be true that your affairs could be in order; benefitting from remittance basis of taxation whilst self-assessing yourself as a non-domiciled individual, but this also needs expert analysis.

The facility is meant to make it easy on taxpayers but in our opinion, it can be a very complicated process and sometimes the 90-day window is a challenge in all but the simplest of cases.

Our aim is to get each client through the process as smoothly as possible so please do get in touch should you feel you need take a closer look at your affairs. We are currently hearing from many individuals who have recently received nudge letters from HMRC, particularly recently in France, Germany, Italy, Spain and Portugal.