The disclosure facility for individuals who have not yet reported tax irregularities from offshore income and gains will run until September 2018.
The measure is the final opportunity to set financial affairs in order before the new, tougher penalties come into force in 2018. This comes as the Common Reporting Standard (CSR) will enforce the cross-border exchange of information on taxpayers to ensure all involved countries are aware of the financial activities.
The offshore issues covered under the Worldwide Disclosure Facility include unpaid and omitted tax relating to income arising from an offshore source; assets held outside the UK; activities carried out in another territory and the transfer of funds connected to another territory.
The first reporting period for CSR is 31 December 2016 and information for this period will need to be reported to the appropriate financial institutions to HMRC before 31 May 2017. HMRC will be able to exchange information with partnered jurisdictions on or before 30 September 2017.
Although the introduction of the CSR is not in response to the Panama Papers leak earlier this year, the full implementation appears to be timely. The level of transparency for tax compliance with global tax authorities will increase to enable all countries to share information on tax residents.
Individuals who have yet to disclose information on their financial affairs should be warned that there will not be any ‘special terms’ offered. The government’s clampdown on tax avoidance and tax evasion will be strict and those owing tax will need to pay the outstanding tax amount in full in addition to the daily interest rate, calculated from the original due date. Individuals might also face a penalty which will be calculated according to the amount owed and, in certain cases, they might face criminal prosecution.
HMRC are expected to be forceful with those that have not paid their tax liabilities for offshore income and gains. However, it is worth noting that the new Worldwide Disclosure Facility may not go far enough to encourage many individuals to come forward. Perhaps those that face large penalties or even prosecution will continue to remain quiet in the hope that irregularities will continue to go unnoticed.
There have been suggestions that offering more appealing settlement terms would entice more people to come forward, and maybe make the scheme more effective. This would also help HMRC save valuable time and resources.
Those that do have underpaid tax liabilities are encouraged to seek professional guidance. They are also reminded that when the CSR is implemented, HMRC will be able to access information on overseas wealth and activity on an unprecedented scale.
The notification procedure will see HMRC informed about an intention to make a disclosure and there will then be a 90-day limit for the individual to complete the disclosure. The final liabilities will be calculated, including tax, duty, interest and penalties. The disclosure will then need to be made using a unique code, which will become a reference for any further activity.