HMRC disclosure terms may not be attractive enough to encourage taxpayers, says expert

HM Revenue and Customs (HMRC) opened the WDF this week, to give taxpayers a means of putting their affairs in order before international information exchange arrangements and tougher penalties come into force next year.

However, the new facility offers no special terms to those taxpayers who choose to come forward, according to tax expert Fiona Fernie of Pinsent Masons, the law firm behind Out-Law.com. Those using it will have to pay any outstanding tax in full plus interest charged daily from the original due date; and may still have to pay penalties calculated as a percentage of the amount owed and potentially face criminal prosecution, she said.

"Tougher sanctions coming in over the next few years point to a zero-tolerance approach, and those with any irregularities should think seriously about setting their affairs in order," Fernie said.

"However, it should be noted that the WDF may not go far enough to encourage many to come forward. Those using it continue to face the risk of hefty penalties, and even criminal prosecution. It is possible that many will look at the terms and opt to do nothing, in the hope that any irregularities are not picked up by HMRC," she said.

"Offering more appealing settlement terms, thereby enticing greater numbers to come forward, may be more effective and could save the Revenue huge time and resource in the long term," she said.

Previous disclosure facilities offered by HMRC included special terms such as penalty reductions and reduced disclosure periods in order to encourage those with tax irregularities to come forward voluntarily. The closure of these facilities, which included the Liechtenstein Disclosure Facility (LDF) and the Crown Dependencies Disclosure Facility, was accelerated by the UK government as part of the 2015 Budget.

The UK's change in approach has been triggered by the impending introduction of automatic information exchange agreements between the international tax authorities. HMRC will begin receiving information about financial accounts held by UK taxpayers in the Crown Dependencies and British Overseas Territories from the end of this month, before a wider Common Reporting Standard (CRS) will begin to introduce the same arrangements on a global level between 2017 and 2018.

The WDF will run until 30 September 2018, ending as the CRS comes into full effect the following month. The government is currently consulting on new legal sanctions for "failing to correct", which would apply to those who have not put their tax affairs in order by this date and which could include minimum penalties of 100% of the unpaid tax.

"It should be remembered that once the CRS is implemented, the Revenue will have unprecedented access to information about taxpayers' overseas wealth and activity," said Fernie. "Anyone who is concerned that they may have underpaid tax should, of course, seek professional guidance as soon as possible."