Updated Liechtenstein tax disclosure deal set to bring in up to £3bn by 2016, HMRC says

More than 2,400 people have registered to use the Liechtenstein Disclosure Facility (LDF), with £363 million in tax already recovered, according to HMRC figures. The figures were revealed as the UK signed a new double taxation agreement (DTA) with the principality, designed to remove obstacles to investment by giving businesses certainty that they will not have to pay tax in both countries.

The two countries also signed a third Joint Declaration renewing their commitment to cooperation on tax matters, which includes a tax information exchange agreement. The Joint Declaration also provides for a Single Charge Rate for 2010/11, which may benefit some taxpayers using the facility, particularly those where inheritance tax liabilities are involved.

The LDF was signed in August 2009 and is currently scheduled to run until 5 April 2016. It allows investors in Liechtenstein who are liable to pay UK tax to disclose any unpaid tax to HMRC and avoid the risk of criminal prosecution. Investors who take advantage of the LDF are liable, in most cases, to pay a 10% fixed penalty for years up to and including 2008/09 on the underpaid liabilities. The level of penalty for later years will depend on a person's circumstances. Taxpayers will not have to pay a penalty if the unpaid amount relates to an "innocent error".

HMRC originally estimated that 2,000 people in total would register for the facility, allowing it to reclaim £1bn in tax, according to the department's Permanent Secretary, Dave Hartnett. The arrangement has already been extended for a year, having originally been set to run until 31 March 2015.

"The LDF has been a great success for HMRC, bringing in significant revenues for a relatively low investment," said tax investigations expert Phil Berwick of Pinsent Masons, the law firm behind Out-Law.com. "Whether the LDF will bring in the £3 billion referred to is another matter, and will partly depend on action taken by taxpayers affected by the UK-Swiss Agreement."

"The LDF is an excellent opportunity for taxpayers to regularise their position with HMRC, usually on very favourable terms," said Berwick. "Many people do not realise that you don't need an existing Liechtenstein account, or even an offshore bank account, to be able to use the facility."

David Gauke, Exchequer Secretary to the Treasury, said that the new DTA illustrated the Government's determination to "clamp down" on tax avoidance both "at home and abroad".

"The UK has the largest tax treaty network in the world but, until now, Liechtenstein was the only country in the European Economic Area we had no agreement with," Gauke said. "This new treaty and the existing disclosure facility show that the net is closing on those who try to evade their UK tax liabilities by using offshore structures - there are fewer and fewer places to hide."

The Government today announced a consultation on the creation of a general anti-abuse rule (GAAR), which will apply to the main direct taxes and national insurance. HMRC set up an Offshore Coordination Unit (OCU) to tackle offshore tax evasion, including through administration of the LDF, in November 2011.