I have not registered for the LDF and have undeclared income or gains that I wish to disclose. What are my options?
The option to register for the LDF and Channel Islands disclosure facilities closed at midnight on 31 December 2015. For those who have missed this opportunity and are looking to make a voluntary disclosure, there are still a number of options available. These include various ongoing campaigns by HMRC, settlement opportunities for users of tax avoidance schemes and voluntary disclosures made directly to HMRC.
Unprompted voluntary disclosures tend to result in significantly lower penalties than those prompted by an HMRC enquiry. Depending on the type of undeclared income or gains, it may be disclosed to HMRC via a specific campaign, for which the penalties are to some degree, fixed. Ongoing campaigns include:
Let property campaign – for those who have let the whole or part of a property whether in the UK or overseas;
Second incomes campaign – for employees who have an additional source of undeclared income, again whether the additional income is earned in the UK or overseas;
Settlement opportunities for users of tax avoidance schemes are aimed at individuals or businesses that have used DOTAS (Disclosure of Tax Avoidance Schemes) schemes, notifiable to HMRC on tax returns. The settlement opportunities provide a set route for resolution in that the person making the disclosure has greater scope to agree a settlement figure with HMRC rather than facing formal HMRC assessments.
In general, voluntary disclosures tend to favour the taxpayer, not least because preparation of the disclosure can take into account any other additional issues which HMRC may be unaware of or may overlook and because penalties for a complete and accurate voluntary disclosure are likely to be much lower than that of a prompted disclosure (up to 100% for UK liabilities and up to 200% for overseas liabilities, depending on the jurisdiction).
What happens if I do not disclose?
HMRC have more opportunities than ever before to track down individuals and entities that have not declared UK tax. The Common Reporting Standard, an agreement between over 90 countries to exchange information with the tax jurisdiction in which the asset holder is tax resident means that UK resident individuals with assets held abroad can expect their overseas financial intermediary to exchange information with the UK.
In addition, HMRC have invested heavily in their “Connect” system, which reviews tax returns and other databases including Experian and the Land registry for anomalies and undeclared transactions.
It was announced in last year’s Budget that HMRC will introduce a ‘last chance’ disclosure opportunity, with a minimum penalty of 30% of the tax due and no immunity from criminal prosecution. The current minimum penalty for an unprompted, voluntary disclosure involving careless behaviour can be reduced to 0%, depending on the circumstances. HMRC have not yet advised when the final disclosure opportunity will be implemented and whether the other options (campaigns, current voluntary disclosure opportunities etc) will still be available. However, on the basis that this final facility will be open until the middle of 2017 only, we expect further details in the upcoming Budget.
If you have a query regarding a disclosure, in relation to either UK or overseas income or gains, please call TaxDesk on 0845 4900 509 and ask for John Hood.