Swiss account holders should "proceed with caution" in response to HMRC letters, says expert

HMRC sent the first of its planned 6,500 letters to affected taxpayers at the end of September, according to press reports. The letters give holders of Swiss bank accounts six weeks to ensure compliance with UK tax laws, and advise those with irregularities to consider using the Liechtenstein Disclosure Facility (LDF) to settle their tax affairs.

"Anybody receiving one of the letters from HMRC should proceed with caution, even if they believe they are UK-tax compliant," said tax expert Reg Day of Pinsent Masons, the law firm behind Out-Law.com. "It is essential that they take specialist advice before responding to HMRC, or signing any of the certificates enclosed with the letter. Taxpayers who submit a false statement to HMRC put themselves at risk of prosecution."

"We have seen many situations in the past where taxpayers have not obtained specialist advice and they have ended up paying significantly higher penalties and, in some instances, faced the threat of criminal investigation by HMRC. The LDF can help where there is a problem, whether or not the funds are held in that jurisdiction," he said.

The LDF is a disclosure process designed for taxpayers with UK tax irregularities connected to a bank account, investment or structure – such as a trust, foundation or company - in Liechtenstein. Individuals who do not currently have assets in Liechtenstein may now be able to bring themselves within the LDF by acquiring a bank account within the principality.

The benefit of settling tax irregularities using the LDF is that although tax, interest and a penalty will be charged, HMRC will only seek tax for the period from 6 April 1999 rather than the normal 20 year period. There is also some immunity from prosecution for tax offences if the LDF is used. The scheme was originally due to end in March 2015, but has been extended until 5 April 2016 due to demand.

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. Individual accounts became subject to a one-off levy of between 21% and 41% as long as the account was open between 31 December 2010 and 31 May 2013. The amount of this levy, which was intended to settle "historical tax liabilities", depended on various factors including how long the assets had been in Switzerland.

Under the terms of the agreement, a new information-sharing provision will make it easier for HMRC to find out about offshore accounts held by UK taxpayers. Account holders that do not authorise full disclosure of their information to HMRC will be subject to a new withholding tax of 48% on investment income and 27% on gains, while HMRC will be able to seek any unpaid taxes with relevant interest and penalties where appropriate.

Figures released by HMRC last month showed that the Swiss agreement has raised £747m to the end of August. However, when it was introduced the Treasury estimated that it would raise £3.2bn. Reg Day said that it was "extremely unlikely" that the agreement would raise "anywhere near" the projected amount.