With the imminent closure of the Liechtenstein Disclosure Facility (LDF), taxpayers who are confused about whether or not they have a historic tax liability relating to foreign assets or earnings that ought to be disclosed to HMRC risk facing prosecution.
Mark Giddens, tax partner, answers some common questions and concerns about the LDF below:
Why should I use it?
It is highly unlikely that HMRC will offer another opportunity to ‘come clean’ about offshore assets that is as generous as the LDF.
What might happen if I don’t make a disclosure?
We will soon see the principle of ‘strict liability’ applied to the non-declaration of overseas income or assets. In other words it will no longer be possible to use ignorance of your obligations as a defense.
This makes criminal prosecution for non-reporting of overseas income or assets much more likely, with prison sentences a real possibility. Strict liability will apply if the potentially lost revenue exceeds £5,000. HMRC and the judiciary are likely to take a harsher view of cases involving professional people should have had a clear understanding of their obligations.
With significant numbers of cases already cleared through the LDF, better funding and greater prosecution powers, HMRC will also be well-equipped for this clamp-down.
Is it too late to make a disclosure?
The facility is closing on the 31 December this year. However, that is just the deadline for registering – you do not have to have settled with HMRC by that date.
However, you will need to have done some preparation and, ideally, taken advice as to whether the LDF is the best route for you, so it is best not to leave it too late.
HMRC will accept registration by phone or fax.
The LDF is just for people who have stashed away millions in offshore tax havens, isn’t it?
No – offshore tax liabilities can relate to income and assets acquired in perfectly normal circumstances and the amounts involved do not need to be huge for an LDF disclosure to be worthwhile. Sources could include rent from holiday homes, dividend income from shares paid into a foreign bank account, overseas properties inherited from relatives, and capital gains on a holiday home sold years ago. An LDF disclosure may simply be the easiest way to achieve a clean slate with HMRC.
I don’t really have full financial records, will that stop me from being able to make a disclosure?
HMRC will accept disclosures with incomplete records as long as your accountant can set out the principles under which your disclosure statements are made.
I might have some undisclosed income, but it dates back years – is it worth talking to HMRC?
Yes, HMRC’s UK investigation teams are empowered to recover unpaid tax going back 20 years. Any discrepancies mean that even very historic off-shore liabilities may be uncovered during this investigation process, which could in future trigger a criminal case.
I paid tax on offshore income locally – surely that means I don’t have a disclosure obligation?
You may still have a UK tax liability and a need to disclose. Your accountant can check on any double taxation agreements that are in place with the relevant country, and also whether there are any differentials in tax rates that mean you still have an obligation to pay.