On 14 August 2014 HMRC announced changes to the Liechtenstein Disclosure Facility (LDF) and the beneficial terms available through it. The ‘favourable terms’ in question are:
- A 10% fixed penalty on the underpaid liabilities (for periods to 5 April 2009);
- An assessment period limited to accounting periods/tax years commencing on, or after, 1 April 1999, and
- The option to choose whether to use a single composite rate (or for some years after 2008/09, a Single Charge Rate) rather than calculate the actual liability s
According to HMRC, the purpose of the LDF was to allow people with previously undisclosed UK liabilities linked to overseas assets to come forward and pay what was owed. However, a number of LDF registrations have been linked to Employee Benefit Trust (EBT) and other arrangements involving ongoing enquiries. HMRC have now therefore restricted who can benefit from the beneficial terms to stop people that have utilized tax avoidance schemes benefiting from them.
Cases which will no longer be eligible for the favourable LDF terms will include those where:
- there are liabilities of which HMRC are already aware;
- the issue being disclosed has already been subject to an HMRC enquiry for at least three months before the date of application; or
- there is no substantial connection between the liabilities being disclosed and the offshore asset held on 1 September 2009.
Those who have entered a Disclosure of Tax Avoidance Scheme (DOTAS) number on their return, or who have been issued with a DOTAS number but failed to include it, will be deemed to fall under the first restriction regarding liabilities of which HMRC are already aware.
The reference to a ‘substantial connection’ between the liabilities to be disclosed and the offshore asset has been quantified by HMRC as 20%.
HMRC have made it clear that there are no changes to those able to register for the LDF and these restrictions apply only to the specific beneficial terms. People were already restricted from entering the LDF if they were under either a criminal or Code of Practice 9 investigation. All other cases can be considered for the facility and will continue to benefit from the guarantee of immunity from prosecution.
HMRC have updated the FAQs and provided a number of examples to illustrate how these new restrictions are intended to work in practice.
The LDF continues to represent an attractive route to voluntarily disclose unpaid taxes. Specialist advice should be sought where it is not clear whether the full beneficial terms of the LDF are available.
The new changes are still untested and there will almost certainly be further clarification sought from HMRC as to whether new cases could be caught by the announced restrictions.