For clients who have some source of income or gain which has not been disclosed to HM Revenue and Customs, there is currently available an opportunity to make a disclosure on very favourable terms. Failure to disclose income or gains is viewed seriously by HMRC and can often lead to a long and worrying investigation by HMRC resulting in: payment of the arrears of tax, significant penalties, interest and professional fees in dealing with HMRC’s enquiries. The level of penalties has recently been increased and depends on various factors, but is greater if HMRC discover the omission first, but they can be as high as 200% of the tax at stake.
However there is a Memorandum of Understanding between the UK and Liechtenstein which is aimed at eliminating UK tax evasion with a Liechtenstein connection under what is referred to as the Liechtenstein Disclosure Facility (LDF). One of the attractions of the LDF is that a client with no previous connection with Liechtenstein, can now establish one (between now and 5th April 2016), e.g. by opening a bank account there to take advantage of the LDF.
Advantages of using the LDF:
- The normal statutory limit for recovery of unpaid taxes is 20 years. Under the LDF, only tax arrears arising since 6th April 1999 are payable. The tax settlement could be limited to four years with no penalty if it can be agreed with HMRC that the individual made an innocent error.
- A fixed penalty of 10% of the arrears of tax applies for tax arrears until 5th April 2009.
- Once the initial disclosure has been made an individual is protected from HMRC opening an investigation. For clients who have undisclosed income or gains, there is an increasing risk that HMRC will discover the omission. For example the taxation cooperation agreement which the UK government signed with Switzerland is causing many individuals to make a disclosure (often using the LDF route) or face penal tax rates in that country as the price for continued anonymity.
- Immunity from prosecution provided full disclosure has been made to HMRC and the monies are not criminal property.
Clients who have any undisclosed income or gains are advised to contact Robert Usher-Somers to discuss how we can help you.