Is Overseas Income Taxable? (‘CRS’)

This increased cross border tax transparency has resulted in more individuals being approached by HMRC with regards to queries around declarations of overseas income and assets and the number of taxpayers making declarations in respect of previously under declared income has increased considerably.

A recent freedom of information request highlighted that, in the 2018/19 tax year, 867 British expats made retrospective declarations, compared to 66 in the previous tax year.

There can, of course, be numerous reasons for under declarations, ranging from a lack of understanding of the tax system (or even that overseas income even existed!) to blatant tax evasion.

However, regardless of the reason, there is a mechanism by which individuals can bring their declarations up to date. This is called the Worldwide Disclosure Facility (‘WDF’).

The WDF was opened on 5 September 2016.

It can be utilised by anyone who wants to disclose a UK tax liability that relates wholly or partly to an offshore issue but which specifically does not relate to criminal property.

Once an individual has registered for (and been accepted on to) the WDF facility they will need to make a full and complete disclosure of all previously undisclosed UK tax liabilities, including a calculation of relevant interest and penalties.

It is important to note that the disclosure must incorporate not only any undeclared offshore income but also any such onshore issues to bring all the individual’s tax affairs up to date.

From a timescale perspective, the disclosure must normally be made within 90 days of an individual being accepted into the facility, at which point it will also be necessary to make a payment in respect of the full amount owed.

It should be noted, however, that in the event that a particular disclosure is complex it is possible to request and additional 90 days to submit the same, giving up to 180 days in total.

It is the case that individuals can opt to submit the disclosure themselves which obviously precludes the necessity for incurring professional costs.

We would strongly suggest, however, that professional advise is sought in order to get an optimal result because:

a) most disclosures require a degree of technical knowledge in respect of the particular area of tax that they are in respect of.

b) there will be a requirement to calculate tax and interest payable.

c) there is a subjective assessment required in respect of individual behaviour that resulted in the non declaration for penalty purposes.

d) behaviour dictates the number of years to be disclosed.

e) previous experience in interacting with HMRC is of significant benefit.