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Business Tax  •  Enquiries  •  HMRC  •  Personal tax

Disclosure facilities to finish by end 2015 with launch of tough new schemes

By Anne Eager on 5 May, 2015

HMRC now has a vast array of resources and information sources to help identify taxpayers who are believed to have underpaid taxes. We have written about these in the past, for e.g. the Connect system, which cost £45m to develop. It is a highly complex system, but in simple terms, works by crawling the Web and comparing data found on social media profiles with information provided by third party sources - like bank statements and letting agency customer lists – to create a lifestyle ‘profile’ of each individual. These profiles are then matched with information submitted on a tax return, to compare whether the reality of a taxpayer’s actual lifestyle reflects the level of income they are declaring.

Running in tandem with the greater investment in resources to spot mistakes and catch deliberate tax avoiders, have been a series of voluntary disclosure campaigns. These are designed to allow anyone who has underpaid to have the ability to come forward and rectify the situation by repaying amounts outstanding, without facing the usual level of penalties. In the case of deliberate tax avoidance the maximum penalty would be 100% of the amount outstanding plus late payment charges, together with a criminal prosecution and custodial sentence.

Since 2009, the government has offered all taxpayers who have assets held overseas the opportunity to declare unpaid taxes through the Lichtenstein Disclosure Facility (LDF). This was due to close by 6th April 2015 but will now remain open until the end of December 2015 for new registrants. The Crown Dependencies (CD) disclosure agreement, which was primarily established to support taxpayers with assets in the Channel Islands will however also be closed to new registrants at the end of 2015, which is earlier than originally publicised. Replacing both the LDF and CD agreements will be a new and tougher, ‘last chance’ disclosure facility which will be available from the start of 2016 through until 2017. This will operate variable penalties starting with a minimum of 30%, but no guarantee of immunity from criminal prosecution.

After this new, harsher facility finally expires in 2017, HMRC is expected to significantly increase the number of enquiries undertaken into the affairs of taxpayers they suspect of tax avoidance, and who have not already used the opportunities available to make a voluntary disclosure. It is therefore much better to go to HMRC and declare any tax shortfalls rather that wait for them to come to you.

What to expect from the Lichtenstein and Crown Dependencies disclosure agreements

Below is an overview of the main features of the LDF and CD agreements, showing what a taxpayer using these disclosure facilities should expect.

  LICHTENSTEIN DISCLOSURE FACILITY   CROWN DEPENDENCIES FACILITY
When does the disclosure agreement cease? New applicants have until the end of 2015 to register in order to use the facility. New applicants have until the end of 2015 to register in order to use the facility.
Who is eligible to use t? Anyone with UK tax liability (includes offshore trustees) UK tax resident - natural or legal person but not offshore trustees.
When does the agreement apply? For tax due from 6th April 1999 to present day For tax due from 6th April 1999 to present
Is inheritance tax included? Yes Yes
What levels of protection are guaranteed? No criminal prosecution unless additional criminality is involved e.g. money laundering. Possibility of criminal prosecution
Guarantee of initial anonymity? Option to speak to HMRC anonymously initially before making a disclosure Option to speak to HMRC anonymously initially before making a disclosure
Does the disclosure facility apply to taxpayers already under investigation? Yes unless investigation relates to serious fraud No
What are the penalty charges? Fixed at 10% to 5 April 2009 and 20% or 30% for 2009/10 and 2010/11. Variable penalties apply from April 2011. Fixed at 10% to 5 April 2009 and 20% or 30% for 2009/10 and 2010/11. Variable penalties apply from April 2011.

What to do if you suspect you have underpaid tax

If you think you have outstanding tax to pay, either because you have mistakenly calculated your tax liability or deliberately withheld details of income received, it is important to declare this to HMRC voluntarily, before they come to you. Taking action in this way limits the level of penalties you will inevitably face and may eliminate the risk of a criminal prosecution. It may also enable you to negotiate a repayment scheme if you face financial difficulties.

However, there are a number of implications to consider before making an approach. For example, arranging access to the funds you will need to pay the outstanding tax and the likely penalties; will a disclosure have other implications? Before making a disclosure it is essential to discuss your situation with a tax specialist experienced in dealing with tax enquires, so that you fully understand the ramifications, and to agree the best strategy.

If you would like more information or a free initial discussion in confidence, please contact Anne Eager by emailing ae@rjp.co.uk.

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