Additions to the FAQ’s on the HMRC website indicate that taxpayers and advisers are already confused by the two disclosure opportunities which are currently running. HMRC has made clear that it is not possible for taxpayers to move themselves from the general disclosure opportunity to the more favourable Liechtenstein facility simply by moving their cash.
New Disclosure Opportunity (NDO)
The new disclosure opportunity launched on 1 September and provides the chance for taxpayers to declare income held in offshore accounts which has not been declared for UK tax. The opportunity applies to accounts anywhere in the world with the exception of Liechtenstein, and the requirement to declare previously untaxed income applies to individuals, trustees and companies, and also personal representatives of deceased individuals. The key dates are :
- Notify of the intention to make a disclosure by 30 November 2009. Failure to do this will mean that NDO cannot be used to make the disclosure. The online notification facility opens on 1 October, but the deadline remains 30 November.
- Make the disclosure and pay the tax by 31 January 2010 unless the disclosure is made online in which case the deadline is 12 March 2010.
The disclosure must include all unpaid tax liabilities whether or not they relate to offshore accounts and assets. The reduced penalties through the NDO scheme only apply to offshore accounts. The rates of penalty are :
- Nil if the total unpaid liability disclosed is less than £1,000
- Nil if, exceptionally the underpayment arose from innocent error
- Nil in relation to defaults by now deceased taxpayers (up to the date of death)
- 10% for most liabilities under NDO, but
- 20% if the taxpayer was contacted in 2007 regarding the original Disclosure Opportunity.
Certain disclosures are unlikely to be settled under NDO, including :
- Disclosures that are found to be materially incorrect or incomplete when checked by HMRC for accuracy and completeness.
- Disclosures from customers where HMRC have begun an investigation or enquiry into their affairs. Those who want to disclose liabilities should tell the person conducting the enquiry. A full and early disclosure will influence the amount of penalty HMRC seek in the ongoing investigation or enquiry.
- Disclosures where HMRC believe the money that is the subject of the disclosure is the proceeds of Serious Organised Crime. This includes VAT Missing Trader fraud, VAT Bogus Registration fraud or Organised Tax Credit fraud and those involved in any wider criminality (such as an ongoing police investigation).
There is no assurance that criminal proceedings will not result from a disclosure, but the guidance indicates that with a full and accurate disclosure this is unlikely.
Liechtenstein Disclosure Facility (LDF)
This facility is open to those holding accounts or assets in Liechtenstein. The facility is a very different approach as it relies on the work that HMRC and the banks in Liechtenstein will be doing together over the next few years. The best understanding of the facility can be gained by reading the Memorandum of Understanding signed on 11 August 2009.
Essentially, the Government in Liechtenstein has agreed that following the period of disclosure those holding accounts who cannot provide a certificate of tax compliance will have their accounts closed. Thus it will only be possible to continue to hold an account in Liechtenstein if the holder has come forward, paid all relevant tax due and can present a certificate from HMRC confirming this fact. The bankers and other financial intermediaries will be contacting account holders between now and 31 March 2015, but those with accounts in Liechtenstein can come forward early and make a disclosure.
The LDF has a number of significantly different characteristics from the NDO. The key issues are :
- Income must be declared and tax paid in relation to tax years starting on or after 1 April 1999. No such time limit applies under NDO.
- The LDF includes an assurance that criminal investigation will not be undertaken
- There is an optional single composite rate of tax, which will cover all tax, NIC and duty, including VAT and SDLT. This is 40%. Under NDO the actual rates of tax must be used. Those declaring under LDF can use actual rates of tax if they prefer.
The penalty rate is 10%, unless exceptionally the non disclosure arose from an innocent error, and interest will be due on any liabilities declared in the same way as for the NDO. However, the FAQ’s make it clear that it is not possible to close an offshore account and move the funds to Liechtenstein in order to migrate from NDO to LDF as the disclosure will apply to the period when the account was open.