Disclosure of any arrangement that may, directly or indirectly, reduce the tax payable to HMRC is essential to avoid the potential consequences of HMRC finding out for themselves.
Disclosure facilities, such as DOTAs are designed to encourage their use, with the benefits that come from be publicly compliant and, essentially, “coming clean”.
Alternatively, disclosure is an excellent method to seek validation of a scheme, rather than entering into it with the hope that it is legitimate.
Worldwide disclosure facility
On 5 September 2016, HMRC announced the launch of a worldwide disclosure facility.
This was not intended to be a descendant of the Liechtenstein Disclosure Facility (LDF), which closed in December 2015, but wasan opportunity for taxpayers to regularise their tax affairs in advance of the Common Reporting Standard (CRS) which came in to effect from 30 September 2018.
As a result of the commencement of the CRS, there was a great incentive for people and business to consider disclosure of tax arrangements worldwide to be made, as the benefits (described below) of disclosure were time limited and failure to disclose could lead to HMRC investigations as a result of information disclosed by other countries under the CRS.
The common reporting standard
The common reporting standard (CRS) is a standard for the automatic exchange of tax and financial information on individuals and businesses worldwide, which was originally developed by the Organisation for Economic Co-operation and Development in 2014.
The CRS in an international initiative whereby over 100 countries have undertaken to exchange tax payer information on a multilateral basis, with the intention of mitigating cross-border tax fraud.
Who does this apply to?
Any UK or non-resident individual or organisation that has a UK tax liability originating from overseas or the UK, but was then subsequently moved abroad.
What taxes does this relates to?
All direct taxes (including Inheritance tax) going back 20 years.
VAT is not included in the facility.
What are the benefits of using this facility?
Disclosure under the Worldwide Disclosure Facility was considered voluntary and therefore the penalties were lower than those applied as a result of an HMRC enquiry.
In addition, HMRC tended not to pursue criminal prosecutions where a voluntary disclosure was made.
What are the consequences of non-disclosure?
Non-disclosure prior to 30 September 2018 led to significantly higher penalties and some criminal prosecutions.
In addition, conventional enforcement steps were initiated with the associated individual risks.