What is the truth behind the HSBC Swiss ‘scandal’?

There has been much in the press over the last week regarding HMRC’s treatment of the ‘Largarde List’ containing the names of 7,000 UK clients of HSBC’s Swiss arm.

In addition to the criticism that has been levelled at HSBC itself, there has been widespread complaint about the fact that over 1,000 of those clients were offered favourable settlement terms by HMRC, and only one was prosecuted.

So what is the real story? 

The Liechtenstein Disclosure Facility (LDF) is at the centre of his matter.

From 1 September 2009 it has been possible under the terms of the Memorandum of Understanding between the principality of Liechtenstein and HMRC to disclose previously undeclared income and gains via the LDF.

The rules unpinning the LDF are complex and have been covered in previous articles, however, they do offer very favourable terms. Firstly, disclosure under the LDF only has to cover the period from 1999/00 onwards as opposed to up to 20 years for people being investigated by HMRC in normal circumstances.  Secondly, the penalty under the LDF can be as low as 10% and thirdly HMRC give an undertaking of immunity from criminal prosecution for the tax related offence(s) disclosed.

Further, people who previously had no connection with Liechtenstien have been able to take advantage of the LDF by creating a ‘footprint’ with a Liechtenstein Financial Intermediary.  This has allowed them to disclose all their previously underclared income and gains worldwide, and including any HSBC Swiss accounts.

The tightening web

Over recent years, things have undoubtedly got much tougher for tax evaders and avoiders.

HMRC have introduced penalties of up to 200% for some offshore non-compliance and are in the process of extending that regime.  They have also consulted on implementing/legislating a strict liability criminal offence with possible custodial sentencing for offshore non-compliance – and the introduction of this is now likely to be accelerated follow this week’s controversy.

Over the last few weeks, we have seen a number of further consultation documents published to address issues such as surcharges and ‘special measures’ for serial avoiders, penalties specific to infringement of the General Anti-Abuse Rule (GAAR) and re-assessment of the role of financial penalties in deterring non-compliant behaviour.

All of this is alongside greatly increased international cooperation and the introduction of the automatical exchange of information between the tax authorities of very many countries from 2017.

Encouraging clients to get their affairs in order

The LDF is not the only disclosure facilty available to individuals looking to regulate their offshore affairs, three Crown dependencies (Isle of Man, Guernsey and Jersey) also have  disclosure facilities.  However, the terms of the LDF are by far the most generous and the LDF is the only one which provides automatic immunity from prosecution for the tax-related offence(s) disclosed.

HMRC are committed to maintaining the LDF only until 31 March 2016 and it is perhaps unlikely that the facility will be extended beyond that date given the current controversy and the advent of the automatic exchange of information in 2017.

Historically, this time of the year between the end of one Self Assessment filing period and the start of the new tax year is relatively quiet.  Might this be an opportinuty to review  clients’ affairs and highlight to all that we are entering the final year of the LDF?  From 1 April 2016, it will be significantly more difficult to regularise the past!

For further information on the LDF or making a disclosure to HMRC please contact the TaxDesk on and ask for John Hood.