Out-Law News 3 min. read
11 Dec 2015, 10:41 am
No details of the planned disclosure facility have been published, but it is expected to be considerably more restrictive than existing opportunities including the Liechtenstein Disclosure Facility (LDF) and Crown Dependencies Disclosure Facilities. The government announced the closure of these schemes at the end of 2015 as part of the March 2015 Budget.
The new facility is expected to run from April 2016, and will coincide with the introduction of tough new civil penalties for those who evade UK tax liabilities on income or gains arising or transferred offshore. These include a new asset-based penalty for tax evasion which makes use of offshore transfers and structures, higher minimum penalties for deliberate offshore evasion and more powers for HM Revenue and Customs (HMRC) to 'name and shame' tax evaders.
Tax investigations expert Paul Noble of Pinsent Masons, the law firm behind Out-Law.com, said that taxpayers concerned about any irregularities involving their offshore accounts had very little time left to disclose these through the LDF in exchange for guaranteed immunity from prosecution.
"The term 'irregularity' does not only extend to problems which are the result of a deliberate act: they can arise as a result of something simple, like not putting right a bookkeeping error when it is discovered or not refreshing your tax advice on a regular basis," he said. "HMRC can potentially reopen tax returns for the last 20 years, and taking pre-emptive action by voluntarily disclosing or entering dialogue with HMRC is always the cheapest and most straightforward way to sort things out - even if you do not currently have the funds to pay the tax that might be due as a result."
"The LDF provides immunity from prosecution and limits the number of years that HMRC can scrutinise. Under the facility, the taxpayer does not need to engage with HMRC at all because a written report is prepared within agreed time limits. The facility is therefore safe, quick and straightforward, and open to all UK taxpayers who are not already the subject of an investigation. If it sounds too good to be true, that's because at the time HMRC designed it, they had no other way of encouraging people with assets offshore to voluntarily disclose them, so they created a disclosure facility with beneficial terms to encourage people to use it," he said.
The LDF allows those with UK tax irregularities to make a disclosure to HMRC on a voluntary basis in return for a reduced penalty in most years. The disclosures only need to extend back to April 1999, rather than the normal 20-year period. It also offers immunity from prosecution and a single point of contact with HMRC. Subject to conditions, anyone without an existing bank account, investment or structure in Liechtenstein can bring themselves within the LDF by acquiring a Liechtenstein bank account before formally registering for the process.
The LDF opened in 2009 and was originally due to end in April 2016. Its early closure reflects the anticipated introduction of automatic exchange of information between HMRC and many offshore jurisdictions, including those traditionally regarded as tax havens, in 2016 and 2017. The Crown Dependencies Disclosure Facility, which allows taxpayers with money in one of the Crown Dependencies the opportunity to settle their tax affairs on favourable terms, will also close on 31 December 2015.
The government intends to legislate for the new civil penalty regime as part of the 2016 Finance Bill, although the relevant provisions will be subject to a commencement order to coordinate their introduction with the new last-chance disclosure regime. Once the provisions are in force, the minimum civil penalties for offshore inaccuracies involving 'deliberate' and 'deliberate and concealed' behaviour will be increased by 10% of the potential lost revenue, according to an HMRC policy paper. Penalties for 'careless' behaviour will not increase.
The 2016 Finance Bill will also include an asset-based penalty, which will apply when inaccurate returns involving deliberate, or deliberate and concealed, behaviour are made to HMRC and the inaccuracy relates to offshore income or gains. The penalty will be based on the underlying asset from which the income or gain that was subsequently evaded was derived, such as an offshore bank account where the interest was not declared or an offshore property with undeclared rental income. The government will publish draft clauses for this penalty for "informal consultation" early in 2016, according to the policy paper.
Tax investigations expert Paul Noble said that the introduction of automatic exchange of information would "dramatically change things for the UK tax authorities".
"Intelligence packages will be landing on HMRC investigators' desks next year, and the fact that the taxpayer has not taken advantage of the many opportunities to regularise their affairs will impact on the categorisation of the taxpayer behaviour and the associated tax risk and, most importantly, what is the proportionate response to the perceived tax risk," he said.
"With the number of criminal investigations continuing to rise, financial penalties are looking likely to become the lesser of two evils for those who fall under the increased scrutiny. Those who have previously been under enquiry, or have made an incomplete disclosure under a previous initiative, will be fast-tracked for consideration of appropriateness for criminal investigation," he said.