On 19 February 2013 a Memorandum of Understanding (MoU) between the government of the Isle of Man (IoM) and HMRC was published. The MoU introduces a new disclosure facility self-titled as the Manx Disclosure Facility (MDF), which is available to people with assets in the IoM who have not previously declared all of their tax liabilities to HMRC.
The MDF will run from 6 April 2013 to 30 September 2016. Financial intermediaries in the IoM are required to notify their clients of the MDF before 31 December 2013 and a further reminder will be sent six months prior to the MDF ending.
In order to participate in the MDF, the taxpayer will need to make a full and complete disclosure and pay the total amount due (time to pay will be available in certain cases). HMRC will then have 9 months to review the disclosure. Advisors familiar with the Liechtenstein Disclosure facility (LDF) will note this is very different to the LDF where first you register, and then have up to ten months to disclose and pay any liability.
The conditions for qualifying for the MDF are restrictive and anyone previously investigated by HMRC or affected by the UK Swiss tax agreement cannot participate.
The MDF is targeted at individuals that already hold or have an interest in IoM assets. There is also the option of creating a connection by 31 December 2013.
HMRC have also confirmed that they will not ‘name and shame’ anyone who utilises the MDF.
Professionals will no doubt compare the MDF to the LDF and there are a number of similarities between the two facilities, as set out below:
- any liabilities arising before 6 April 1999 will not be subject to tax;
- 10% penalty for periods up to 5 April 2009;
- a bespoke service; and
- an initial discussion on a “no names basis”.
One key advantage of the MDF as compared to the LDF is that the taxpayer does not need to create a connection with Liechtenstein, thus saving on the administrative costs of opening a bank account and transferring funds. However, in order to be eligible to participate in the MDF the asset must be held in the IoM during the period 6 April 1999 to 31 December 2013, so a connection may need to be established there – and with only a limited window to do so.
There appear, however, to be a number of disadvantages of using the MDF compared to the LDF.
Taxpayers cannot participate if they:
- have ever been under investigation by HMRC (where statutory powers have been used);
- fall under the UK/Swiss agreement;
- have participated in a previous disclosure scheme or have been contacted by HMRC regarding a previous disclosure scheme.
The MDF also does not offer immunity from prosecution, which in the current environment is becoming more and more important (- HMRC have previously stated that there will be a fivefold increase in the number of criminal investigations they undertake).
HMRC have announced that further guidance (joint declaration, exchange of letters, issuance of FAQs and answers) will be published in due course.