If you have money or other assets abroad you could owe tax in the UK. This is the message being sent out by H M Revenue and Customs (HMRC) and they are urging people to ensure that their tax affairs are up to date before a tough new approach comes into force, writes Pearson May partner Nick Oliver.
Those people who fail to correct their offshore affairs before the end of September 2018 could be liable to penalties of up to 200% of the lost tax, with HMRC having the powers to name and shame the offenders in certain circumstances. 
A key issue which is frequently misunderstood is where you have already declared and paid tax on income or gains overseas. You may already be reporting your income etc in a foreign jurisdiction but, if you are resident in the UK, it almost certainly needs to be reported to HMRC. Double tax relief is usually available so that you don’t end up paying tax on the same income twice.
In worldwide efforts to curb tax evasion there will, in future, be much more information shared between countries. More than 100 countries have so far committed to a Common Reporting Standard whereby there is an automatic exchange of financial account information. Overseas financial institutions will be obliged to provide details to HMRC about anyone with financial accounts and investments in their jurisdiction who appears to be resident in the UK. At the same time, banks etc. in the UK will provide information on non-UK residents to HMRC.
If you have assets overseas you should be considering whether your tax affairs are compliant or whether you need to bring your affairs up to date and disclose your overseas income to the taxman.
HMRC’s Worldwide Disclosure Facility (WDF) opened on September 5, 2016, and is available until September 30, 2018. Anyone who wants to disclose a UK tax liability that relates wholly or partly to an offshore issue can use the WDF, but we would urge you to seek professional assistance.
The WDF will be the final chance to come forward before HMRC begin to make full use of information obtained under the CRS and toughen their approach to the non-declaration of offshore income and assets.
Procedure for making a disclosure
The first step to make use of the WDF is to notify HMRC that you wish to make a disclosure and this can be done using their online notification form
Once the notification form is submitted, HMRC will write to you with a unique Disclosure Reference Number (DRN) which you need in order to make your disclosure to HMRC. You have 90 days from receipt of the DRN in which to make full disclosure and pay any tax, interest and penalties that are due.
You must self-assess your ‘behaviour’ to determine how many years you need to disclose to HMRC. As part of the disclosure the total undisclosed income and gains must be calculated together with the tax due.
We would recommend that you seek professional advice to guide you through the procedure and prepare the necessary calculations.
If the source of income is continuing you may need to register under the self-assessment regime and file tax returns for future years. We have lots of relevant experience and can assist you with this, if required.
What about penalties and interest?
These must also be calculated when making the disclosure and the taxpayer must self-assess, deciding what level of penalty applies in their individual circumstances. This will depend on the facts of the case and the reason for not making the disclosure previously. The time taken to correct your non-compliance or whether a disclosure could have been made using one of HMRC’s previous facilities come into play when determining the level of penalty.
Professional assistance is advised, so that you do not end up paying more than is necessary. Interest must be calculated from the date that the tax should have been paid to the date that you anticipate making payment.
As part of the WDF, HMRC also require the maximum value of the assets held by you outside the UK over the last five years to be disclosed
The WDF should be viewed as a final opportunity to regularise your affairs before HMRC begin to process information obtained under the CRS. The processes involved in the WDF are complicated and professional advice should be taken.
The above is for general guidance only and no action should be taken without obtaining specific advice.
