Out-Law News 3 min. read

HMRC to adopt "more robust stance" on Liechtenstein Disclosure Facility (LDF)


HM Revenue & Customs (HMRC) will be taking a "more robust stance" in relation to disclosures from individuals who seek to settle outstanding tax liabilities using the Liechtenstein Disclosure Facility (LDF) from 1 April 2013, according to a letter sent by HMRC to tax advisers.

LDF disclosures which do not contain all the required information will not be accepted and if the missing information is not supplied within a reasonable period of time "this will be interpreted as non-cooperation and consideration may be given to withdrawal of the beneficial LDF terms", said the letter from HMRC.

The LDF is a disclosure process for taxpayers with UK tax irregularities connected to a bank account, investment or structure, such as a trust, foundation or company, in Liechtenstein. Tax, interest and a penalty will be charged, but HMRC will only seek tax for the period from 6 April 1999, or from 1 April 1999 for companies, rather than the normal 20 year period.

There is also immunity from prosecution for tax offences under the LDF. Individuals who do not currently have a bank account, investment or structure in Liechtenstein, may be able to bring themselves within the LDF by now acquiring a Liechtenstein bank account.

There have been more than 4,000 registrations for the LDF and HMRC expects that up to £3 billion of tax will be recovered throguh the LDF.

Phil Berwick, a tax investigations expert with Pinsent Masons, the law firm behind Out-law.com, said: "The LDF has been a tremendous success for HMRC. HMRC is looking to tighten its procedures, and is putting advisers on notice about the possible withdrawal of the beneficial LDF terms in the event of delay in submitting disclosures."

"Taxpayers using the LDF need to make sure that all relevant documents have been prepared by their adviser. Ultimately, it is the taxpayer who will suffer if the terms of the LDF are withdrawn. This could mean, at least, higher penalties, or, in certain cases, criminal investigation by HMRC," said Berwick.

HMRC's letter states that individuals who do not have the means to pay the outstanding tax should raise this as soon as possible and, as part of the disclosure process, should provide evidence of their inability to pay and set out the proposed terms for repayment.

"Taxpayers with a means problem, and who are using the LDF, need to ensure that their adviser is engaging with HMRC at the earliest opportunity to agree an appropriate repayment period." Phil Berwick said.

A new disclosure facility for UK residents with Jersey bank accounts will come into force in April, according to an announcement in the Budget on 20 March. This followed recent announcements about similar disclosure facilities for UK residents with bank accounts in the Isle of Man and Guernsey. These disclosure facilities are coupled with new agreements with these territories to automatically disclose information to HMRC about UK residents with bank accounts in these territories.

An agreement between Switzerland and the UK, in relation to undeclared Swiss bank accounts held by UK residents came into force on 1 January 2013.   UK residents who do not disclose their Swiss accounts to HMRC may be subject to a one-off levy of between 21 - 41%, depending on various factors, including how long the assets have been in Switzerland.

Phil Berwick said that "Offshore account-holders with UK tax problems should seek help now".

He said that in many circumstances the LDF will be a more favourable way to resolve outstanding liabilities than using the disclosure facilities about to come into force with Jersey, Guernsey and the Isle of Man. Berwick said that the significant advantage that the LDF has over these disclosure facilities is that the LDF offers immunity from prosecution, whereas these other disclosure facilities do not.

In a document entitled No safe havens  - Our offshore evasion strategy 2013 and beyond' which was published with the Budget on 20 March 2013, HMRC has set-out how it is going to get more information about offshore tax evasion, and how it expects to be able to use that information more quickly.

The document states that there will be a review of incentives for 'whistle-blowers'. This could see higher payments, possibly as a percentage of tax recovered, being paid to those who provide information on evasion to HMRC.

Also, HMRC are seeking to establish that offshore evaders only get the maximum possible mitigation of penalties (which can be a maximum of 200% of the tax) where they provide details of any third parties who have helped them to set-up their offshore arrangements.

A key part of HMRC’s strategy will be an increase in the number of investigations, under both civil and criminal provisions, into those suspected of offshore evasion. An increase in the number of prosecutions for tax offences was announced by the Director of Public Prosecutions, Kier Starmer, in January.

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